Why Businesses will need Bailout due to the Pandemic
Say you have a small business like a local store operating for years. This is your revenue, the money you receive every month from your sales. This is your monthly expenses, like rent, bills, and cost of the merchandise. In-between is your monthly profit. Depending on the niche and size of your business, this profit can be larger or smaller, often referred to as the gross income margin. Finally, you pay tax on this profit, so the final net margin will be even smaller.
Now, here’s what happens to your small business as countries go into lockdown due to the coronavirus pandemic. Your revenue goes to zero instantly and you are left with just expenses.
So, your first thought should be to cut your costs as much as possible. Hence, you lay off your workers. You stop buying supplies and halt production if you are creating products yourself. No matter what you do though, some expenses are inevitable, like your rent. Thus, you’ll lose money fast. It will seem to lose money even faster as you don’t make anything back.
Say the lockdown lasts one month and sales return to normal after two months in a best-case scenario. How many months do you need to operate your small business for, in order to make back all the money you lost during these two months?
That net margin we talked earlier comes into play now. In the USA, hotels and restaurants operate on 10% on average. Air transport on 7%. Retail and food industry on 2%. They’re able to make money due to huge amounts of sales. When those sales are wiped out, big corporations will need many months to recover if they’re not bankrupted in the lockdown. The solution? A bailout. Guess who’s paying for those bailouts. I wonder, though, will your small business get one?