As a financial analyst, it is sometimes easy for me to just focus on the big picture.
Whether it’s a positive set of circumstances like what we’ve had in our hands for most of the last year…or something as economically and perhaps personally devastating as the impact of Covid-19 … my first instinct is to look for answers to the following four questions:
- What are the data?
- What is the expected impact?
- What is the timeline for how long should this be?
- What is the best recommendation on how to handle it?
In fact, I just wrote a Forbes article about it the other day. In “The coronavirus is hurting restaurants. Here’s what it means for real estateI cut to the chase, noting how:
“Besides airlines and hoteliers, restaurants could be one of the biggest victims of the coronavirus pandemic.
“In just a few days, thousands of restaurants – from fast food chains to fine dining establishments – closed their doors across the country. Eating out was one [of] the first things many people discounted when they realized Covid-19 could be spread through human-to-human contact.
“And then, one by one, many cities and states across the United States began ordering food establishments to lock their doors, although many were still allowed to offer delivery and takeout to customers looking for food. in a quick and easy bite.”
In the next paragraph, I highlighted the sad truth that there will be dozens of small businesses that will never reopen.
There is no way around it.
Bigger isn’t always better, but it’s an automatic benefit of Covid-19
Now, in the previously mentioned article, my whole point was:
- Show data
- Present the projected impact
- Provide an expected timeline for how long it should last
- Provide a recommendation on how best to handle it.
Specifically, I was recommending two actions that I firmly believe will emerge victorious from the battle of Covid-19. They behaved defensively in the good times, and therefore they will be able to handle themselves offensively during the bad ones.
But that’s because they’re well-run, well-structured, well-financed giants. And it is this last description that is the basis of their survival.
There will be bigger companies coming out behind thanks to the coronavirus. And there will be bigger companies that will completely collapse.
In large part though, this will be down to the merits of their management teams and practices – before, during and after these unfortunate events.
Small businesses, however, can be very well run and very well structured. But what type of family operation can properly prepare for an economic apocalypse?
There will be those who manage to survive, watch out. But the personal implications for these hard-working entrepreneurs as a whole must nonetheless be spelled out.
I know this not only because of my research and assessment of the subject. I know this because I was in those shoes myself once upon a time.
So many expenses
Back when I was a property developer, I also tried my luck as a multi-unit franchisee for Papa John’s and The Athlete’s Foot.
It all started with a single vacancy at a mall I owned in Chester, SC. Instead of looking for a new tenant, I decided to become mine by opening my first pizzeria.
Three years later, I had seven more, plus two shoe stores. Because… why not when that meant my cash registers were ringing pretty much every day?
It was an immediate benefit of the position. Although there was also a downside, as there always is. There isn’t a single form of making money that doesn’t involve paying a certain price.
For example, there are many, many, many costs involved in operating a retail store. I can’t stress that enough.
It’s not just the cost of equipment, but also the cost of labor, insurance, marketing, utilities…and rent.
I remember telling my friends that most franchisees were just one store away from closing up. There was always a new figure to calculate and a new expense to calculate, it seemed.
These operational expectations have not changed at all since then. Thus, these expenses are accumulating rapidly while available funds are dwindling or are totally dead for the time being.
I can very easily imagine what these small business owners are going through as a result. And it can’t be fun, to say the least.
There is a way out of Covid-19
As I keep emphasizing, this Covid-19 disruption will be temporary. The US economy will restart. Stores will reopen, consumers will start consuming again, and rent checks will start flowing again.
Also, I’m sure most commercial landlords will do what they can to provide for their tenants. It is in their interest to offer rent concessions or extensions during these difficult times.
This will not be enough for everyone.
I have spoken with many real estate experts over the past two weeks. And the consensus is that we could be looking at a full six-week disruption. And then, of course, it will take time for people to feel comfortable spending money again…or going out at all.
Keep this in mind when considering which stocks to buy in when the markets are so ravaged.
And keep that in mind when you think about dreams dying even as you read. My sincere hope is that those who find themselves out of their pre-coronavirus businesses will find bigger and better things to accomplish in the post-coronavirus world.
If you are one of them, believe me, you can do it. Even after removing the entrepreneurial rug from under you.
Like I said, I’ve been there. And yes, I did too.