Do Business Owners Need to Worry About a Recession in 2020?

What a difference two months make in our world today. We wrote the title of this blog post in February when all economic indicators pointed to an economy on steady ground. Fast forward 2 months and our global economy is completely upside-down. The lesson we must all learn is that business can change on a dime; and when it does, it is rarely for the better.

Tue May 12 14:24:00 EDT 2020
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We decided to leave the original post from each expert intact (February post) and allow them to update their responses to today’s economic conditions (April update).

Wheeler Financial from Pitney Bowes recently asked some of the top experts in the small-to-midsize business (SMB) market about trends in 2020. Here’s what they had to say:

Wheeler Financial: As we’ve turned the calendar on a tumultuous 2019, do business owners still need to worry about a recession in 2020?

Brian Moran -- CEO, Small Business Edge:

February Post - Many business owners were concerned about the potential for a recession last year. Thankfully, it didn’t happen. The economy remains generally strong, economic indicators continue to project well, and optimism among business owners is high.

This is the best time to make sure your business is prepared for any downturn. Play the “What if” game and see if you have answers to the potential scenarios. For example, what if there is an economic downturn – do you have access to enough capital to weather the storm? What if your largest customer goes to a competitor or a key person in your company becomes disabled? Do you have contingency plans if things start to spiral downward?

The best time to plan for a recession is right now, when the economy is humming. The worst time is after the recession hits.

April Update – I wish we had posted this blog in January. Think of how prophetic I would look. Today, the best advice I can give business owners is to have 30-60-90-day plans with specific goals for your business – even if it means doing what you can to stay in business. Now is the time for decisiveness and being proactive. Keep your eyes on the important economic indicators and be prepared to pivot your company at a moment’s notice.

Barbara Weltman -- President, Big Ideas for Small Businesses, Inc.:

February Post - Most key economic indicators—including sentiment among SMB owners—are strong, indicating no recession this year. I’m seeing new businesses starting up (both my daughters just started their own businesses which are in different parts of the country) and existing businesses are forging ahead with expansion, reflecting optimism in the economy. But there’s always the possibility of a black swan incident, such as the coronavirus getting out of control, that could upend a good economy and create a recession. As always, hope for the best but plan for the worst.

April Update - – What a difference a couple of months make and that black swan event—the coronavirus—did get out of hand. We are already in a recession as a result of COVID-19. But it’s unlikely we’ll go into a depression because of the trillions of federal dollars coming into the economy through the CARES Act and other stimulus packages as well as dramatic moves on the part of the Fed to keep interest rates low and provide support to businesses. Still, now is the time to take decisive action in order to survive this pandemic and the recession it’s triggered. We all need to use this time to find new ways to keep our businesses functioning, to learn about and make sure our businesses are taking advantage of new federal programs, and most importantly, to support each other.

Andrew Sherman -- Partner, Seyfarth Shaw LLP: 

February Post - The short answer is no. There was some concern last year of a recession happening in 2020, mainly because we’ve been on such a good ride for most of the decade, but all indicators suggest there will be no recession in 2020. However, things can and often do turn quickly. We need to be proactive when it comes to unexpected occurrences. If the coronavirus escalates into a global pandemic, it will impact every single industry, and almost every enterprise level company. Supply chains will slow to a crawl as will international travel. There is also a presidential election in November. If businesses think that next year will be worse than 2020, we can expect to see market pullbacks with companies adopting a “wait-and-see” attitude.

April Update - Due to the impact of Covid19, a short-term recession risk is now all but assured.  We may already be in it.  Jobs losses, slowness in consumer demand, supply chain pressures, choppy inventory levels and business closings and contractions are all contributing factors.

The real question is how long will it last and how deep will it be? The capital markets have been volatile, and it is spilling into access to capital formation for smaller companies. Will it be V shaped or an elongated U? The economy and our banks were strong going into the crisis, which tends to support a V or even a W-shaped recovery. The key will be consumer demand and consumer confidence rebounding soon after social distancing guidelines are eased. That should get both the economy going again and get folks back to work.

Karen Kerrigan -- President/CEO, SBE Council:

February Post - I felt the experts predicting a recession last year were wrong and continue to believe the same for 2020. I do not see any major policy disruptions that would cause optimism (and therefore consumer spending and investment) to significantly change or plummet. In fact, I see greater certainty when it comes to trade policy, regulatory reforms and a push for positive changes that will improve capital access and formation. Small business optimism remains quite high, and workers and families continue to remain positive about wage growth and their financial wellness. As we move closer to the elections, there could be a shift in optimism depending upon how businesses believe things will shake out come election day. That remains an unknown that I continue to monitor.

April Update - No one saw the COVID-19 catastrophe coming, and that was especially the case with small business owners. Many believed 2020 would be their best year ever. As such, they were expanding, hiring, investing – all the things an entrepreneur would be doing when revenues are growing, and confidence is high. For most business owners, those whose businesses have survived, digging out of the COVID-19 economic carnage will be tough. Business owners continue to pivot, innovate, collaborate and negotiate (with creditors), and have cut expenses to the bone. Keeping the DNA of the business intact and thinking ahead in terms of how the products and services of a business fit into a post-COVID-19 marketplace and bumpy recovery period are what business owners need to be thinking about. Will the products and/or services be in demand? Does the business model or offerings need to fully change? If you are resolute and determined to survive, continue to apply for SBA Paycheck Protection Program and “economic injury disaster” loans (EIDL) if you haven’t yet. My guess is that the rules will be updated to reflect changing realities and more sources for this funding will come online. Hang tough and be smart. Sign up for our enews for free at sbecouncil.org where we provide the latest updates!

Tamara McCleary -- CEO, Thulium

February Post - A correction is coming, but I don't believe it's going to happen this year, (barring the Coronavirus becoming a global pandemic). Economic growth in the U.S. is projected to be less than last year but the economy is growing, nonetheless. Despite everything that is happening around the world, the U.S. economy remains on stable ground. Unemployment is low, inflation is in check, and consumer confidence is strong. America has enjoyed almost a decade of prosperity which has some people thinking “all good things must come to an end.” Also, no one wants to be steamrolled in the same way we were back in 2008 when the “Great Recession” hit our economy.

The one caveat to my answer is the unexpected Coronavirus pandemic. If the Coronavirus is not under control soon, I do believe we are going to see serious economic effects globally and potentially a global recession. As an example, look at companies reliant on global suppliers, and the effects on their supply chain due to the spread of the virus.

However, supply chain issues are the tip of the iceberg. Canceled global conferences, (such as Mobile World Congress's cancellation due to the Coronavirus threat), have a massive economic impact upon host cities (e.g. their prep expenses and a measurable decrease in tourism revenue). Recently talks began about the possible cancellation of the Olympics in Japan.

We can't anticipate or account for unexpected variables and outliers such as pandemics. However, as business owners, we must look realistically at what is occurring globally and determine how it will affect our companies. We don't have control over things like viruses, so we are challenged to make decisions today based on current information. My advice is to forge ahead with strength and optimism by taking the plan you put together at the end of last year and doing everything you can to hit your goals for 2020.

April Update – Unfortunately, the coronavirus became a global pandemic. A recession is inevitable (if we aren’t already in one). The challenge business owners face today, and moving forward, is how do they move through the pandemic without going out of business. They must keep as much money as possible until the revenue streams start again. They also need to update their business goals for 2020 to reflect the impact of COVID-19.

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