Small Businesses Are Disrupted: Here’s What Owners Are Worried About and How They’re Handling It.
The coronavirus pandemic has forced most small businesses into survival mode, with many putting long-term plans and savings on hold. According to our latest ShareBuilder 401k survey of 500 small business owners (SBOs) fielded March 27 to April 3, 2020, 75% of small business owners are concerned (22% extremely concerned) about the future of their businesses. But there are some who are taking steps to optimize operations and long-term plans in order to protect their workers and pull through. Here’s some insight into their states of mind—and the state of small business—during the time of COVID-19.
Our new research shows that the majority of small business owners expect challenging markets to persist. Plus, many are financially unprepared and have their long-term savings and retirement at stake.
SBOs Expect Market Volatility to Continue
Given the fast, evolving impact of the pandemic, many are anticipating that they’ll be dealing with the financial market impacts for many months or more to come. A majority of SBOs (54%) think that the current market volatility will last more than 6 months—and more than a third (35%) are predicting that it will last more than a year.
SBOs Have Prioritized How to Cut Costs
As many small businesses work to survive with much of the nation on virtual lockdown, their plans to pare budgets indicate they’re putting their employees first. SBOs report marketing expenditures (30%) and operating costs (30%) are most likely to be reduced first before they consider cuts to labor and benefits—business hours and workforce (each at 15%) and employee benefits (10%).
For Small Businesses with 401(k)s, Owners Are Taking Action
Among the minority of small businesses that offer 401(k) plans, 76% have done or plan to do something with regard to their retirement plan and/or account as a result of current volatility. More than a quarter (27%) of SBOs have or plan to have informal conversations with staff about market volatility, 20% are asking their provider to provide more information or education and 19% will or plan to increase contributions to their own retirement plan. Other are decreasing contributions, suspending their match (9%), and 6% are shopping providers.
With So Many SBOs Needing Access to Cash, What Are Their Options?
Nearly half (47%) of SBOs don’t have an emergency fund in place in case of an economic downturn. In addition to limited savings, many SBOs don’t have adequate back up plans in place:
It’s essential we support small businesses to find relief and survive the near-term, as failure to do so during this pandemic will be compounded by the long-term impacts on Americans’ inability to save for their futures. With more than half of American workers employed by small businesses, we must work to deliver the right tools, information, access and resources necessary for both near-term survival and long-term success.
Though ShareBuilder 401k has already published an inclusive post on how small businesses can manage and access cash during emergencies, including vendor reductions and pre-customer payments, there’s a new way for SBOs to access funds in the here and now that’s worth exploring as part of the CARES Act. This and additional funding expected via SBA’s Payroll Protection Program may help many.
The CARES Act Offers Emergency Access to Retirement Accounts
Whereas we don’t usually recommend tapping into your retirement nest egg, sometimes drastic times require drastic measures—and this pandemic has put many SBOs in dire straits so it shouldn’t be overlooked as an emergency source of funds. Through the recently passed CARES Act, the government has temporarily relaxed the rules for IRA and 401(k) withdrawals for people impacted financially or fiscally from COVID-19. In normal times, early IRA or 401(k) withdrawal meant SBOs would incur major taxes and penalties, but under the CARES Act, SBOs and Americans in general can now withdraw up to $100,000 of their vested retirement savings without the 10% penalty and the 20% withholding. If you’d like to avoid paying taxes on this money altogether and build your retirement savings back up too, you have three years to pay it back to your retirement account and avoid taxes on the withdrawal altogether.
It is essential that a business owner—before tapping retirement money—feels reasonably certain their business can and will make it. If the retirement money is to be invested in the business as a final attempt to stay afloat, but the business is still likely to go bankrupt, it is best not to lose these retirement monies as well as the business. In other words, likely better for personal use or to leave it alone than to put toward the business.
METHODOLOGICAL NOTES. The ShareBuilder 401k Retirement Survey was conducted by Wakefield Research (www.wakefieldresearch.com) among 500 U.S. Small Business Owners at companies of 1-50 employees, between March 27th and April 3rd, 2020, using an email invitation and an online survey. ShareBuilder 401k has fielded regular research on the small business marketplace since 2006.
Results of any sample are subject to sampling variation. The magnitude of the variation is measurable and is affected by the number of interviews and the level of the percentages expressing the results. For the interviews conducted in this particular study, the chances are 95 in 100 that a survey result does not vary, plus or minus, by more than 4.4 percentage points from the result that would be obtained if interviews had been conducted with all persons in the universe represented by the sample.