• Kevin McDonnell

Business Failure & Job Losses Model as of Result of COVID-19 Essential Business Restrictions

By Kevin McDonnell

Adjunct Professor Brandman University – Entrepreneurial Finance

Over the past few months we have seen numerous predictions of the impact of the COVID-19 pandemic on our public health systems. Our Federal, State and Local governments have imposed guidelines and restrictions in order flatten the pandemic curve so that we handle the patient case load. It appears that these restrictions have been effective in flattening the curve. Remember the goal was not minimize COVID-19 cases or deaths but to flatten the curve. So the question is when do you start lifting these restrictions?

These essential business and physical distancing requirements have had a devastating impact on small business (less than 500 employees). Many of these businesses from your local gym to hair salon have had to close “temporarily”. Yes public assistance can help bridge the gap in the short term, but will not fully address the impact. Small businesses are not generally prepared for a total loss of business. The small businesses’ ability to sustain itself will be highly dependent on cash reserves and the owner’s ability to infuse cash to sustain the business.

The below model was generated by making assumptions about the small businesses’ cash reserves and owner support for the more than 30 million small businesses in the United States.

Using some fairly conservative assumptions, the model estimates that 2.6 million jobs will be lost through small business failures if the restrictions continue through June 1. This jumps to 6.4 million lost jobs by July 1 and 13.6 million by August 1. Past this point you are looking at total destruction of the economy.

Our leaders must weigh the public health risk versus the economic impact particularly to our small businesses which represent 50% of our GDP according to the Small Business Administration.

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