Tech Firms Never Grow This Much

Small businesses are in dire shape even though small-cap value stocks exploded in November. There is a massive difference between a $500 million publicly traded company and a small firm with 15 employees. In a survey of 1,000 entrepreneurs from July to September done by Bank of America, 39% of small firms expected their local economy to improve in the next year which was down from 51% at the start of the year. It’s surprising how negative they were at the start of the year.

Hiring plans and sales expectations are at the lowest point since 2012 and 2013. 7 in 10 firms expect to keep staffing the same in 2021 which isn’t that great because we need these firms to rehire the workers they fired in 2020. 24% of small firms retooled operations because of the virus and 61% developed new products and services. The problem is these additional costs only clawed back sales they would normally get. It’s not like these costs grew their businesses. Think of restaurants that made outdoor additions. They needed to buy heaters, outdoor furniture, and build tents just to serve their existing customers. They probably made less sales and had more expenses.

As you can see from the chart below, 45% of small restaurants are at risk of closing for good.

It’s 61% for gyms which makes sense because there aren’t outdoor workout areas like there are for eating. Even many of the bigger gyms have gone bust. Gold’s Gym filed for bankruptcy in May. The worst-hit industry in this survey was travel and hospitality. We think there will be a boom in travel spending in the 2nd half of 2021. The problem is many small firms won’t make it that far. Overall, 48% of small firms are in trouble which is categorized as having sales below where they need to be to stay in business.

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