By Mary Spring
The View From a Small Town
Yesterday I drove down the main street of our small town on my way to pick up a few essential items. Really, I could have been driving down a main street of any small town in Canada.
At noon hour the main street was empty, with virtually no cars on either side of the road. I noticed all of the stores and eating establishments with signs on their windows and it made me feel very sad. The hardest part of this situation is the unknown. No one is able to tell us when this nightmare will end. What can be done to save our small towns, to keep our small businesses alive, and to look after the employees who have lost their jobs as a result of this crisis?
I am not an economist. Instead, I spent my career teaching elementary school children, mainly six-year olds. I am feeling the brunt of this COVID-19 in many ways. Isolation is difficult, but that can be managed. I am a landlord. I am a consumer. I have family members who operate a small business in this town. I have a family member living in a long-term care residence in this town. I am attempting to make sense of my situation so that other people can have a better understanding of the complexities of this virus.
Our government is working hard to keep us informed of the pandemic. The daily updates from our prime minister, our health officials and premiers have been most helpful. We are lucky to have such dedicated leaders helping to keep us informed. I am proud to be a Canadian these days.
Our government is working hard to help Canadians stay safe, to get help financially, and to stimulate the economy. We will be in debt for years and years to come, but looking after people is the number one priority.
The problem with government incentives and stimulus packages is that we are in a vicious circle. We are all part of a big puzzle, which needs each piece working together in place in order to be completed. I am attempting to relate this to saving small towns in Canada.
When a small business closes its doors, whether that is a retail business or a restaurant, there is no income coming in. That business has variable costs, which are cut because there is no longer an income. The employees have been laid off. There is no longer a need for a carpet cleaner, a delivery of food, garbage pick up, courier services, or costs of goods sold.
That being said, the small business has fixed costs, which never go away. Fixed costs are substantial and they would include rent, utilities (gas, heat, water, electricity), as well as loan payments that the business has incurred. With no revenue, the business owner is not able to pay those bills for long. In order to survive, the business must borrow more money and go further into debt. If and when the doors open again, they will be debt ridden. Will their profits allow them to pay off that debt?
Is the money that the government is proposing going to help the small businesses, retailers, and restaurants in our small towns? Will such funding get them through this crisis and allow them to open again?
The Canada Emergency Response Benefit (CERB) will help individuals and families in time of need. There has been an increase in the Canada Child Benefit and people have extra time to pay their taxes and mortgage payments. Consumers and families must be looked after so that they are not debt ridden at the end of this period of time. A small business will never recover without consumer spending.
The forty thousand dollar loan to small business owners, with ten thousand possibly being a gift, if they qualify, will help to pay off some of the fixed costs now. We do not know how long this will last. This is a loan and it will add to their debt when this is over.
The GST and income tax deferrals will help for now, but that money will still be owing in June. This means further debt for the business owner.
The stimulus for small business sounds appealing. The government, in an effort to keep people employed and to allow them to return to their original job, will pay seventy-five percent of wages. The problem is that when a business has shut their doors they no longer need employees because there is no business. The owners have no income, so they are unable to pay any wages. They are being asked to pay full wages and then be reimbursed by the government. Again, with no revenue available, this is an almost impossible task.
Some people are urging the government to provide rent relief. Most small business owners do not own the buildings that they are occupying. The problem with rent relief is that it forgets that landlords are also struggling. Landlords have as much debt as any small business. They need the rent in order to pay their fixed costs.
So, the question that we need to ask is, are the government initiatives really going to help our small town business owners? What else could the government do to help this important industry? It is essential that businesses in small towns survive, or there will be few jobs for people to return to.
In order for our businesses to survive they need people who are spending money. We must look after our families so that they will be able to consume in the future.
Picture our small town. What will it look like when we get through this crisis? We need more than a deferral of costs for small business owners. There must be some conversation about forgiveness if we want our small towns to survive. That would mean forgiveness from every piece of the puzzle.
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The 75% proposed wage subsidy for businesses is very generous and it will help some businesses that are able to stay open at this difficult time.
It should be noted, however, that this 75% wage subsidy that helps to pay a company’s payroll does not have to be paid back by the company. Small businesses who are not able to take advantage of the 75% wage subsidy have not been offered any other programs that are forgivable. They are all in the form of loans. There needs to be something else offered to help to level the playing field.
Paul have you ever owned a small business? This article is about small business surviving the current Covid 19 situation. If you simply give consumers money it does not create demand that saves our local small businesses. It does help large businesses. When an individual qualifies for free money they look after their basic needs first as any logical person would. They pay rent, go to the grocery store and the LCBO. There is no money left over that will save a small business in Huntsville by this “demand” you talk about.
Paul the number of small businesses in Canada has been declining for decades (as a percentage of GDP).
On a final note… there is study after study on just about everything Paul. The reality is People need jobs to provide for their families, provide meaning and purpose to their lives and generally feel good. Huntsville needs a strong healthy community and work force that is competitive and self sufficient.
Thank you, Mary, for this closely argued article. Some European and Scandinavian countries are compensating employees 100% for the duration of the pandemic. Bernie Sanders, as well, has this as his first plank in his plan to attack the pandemic. Of course, he is in third place, and unlikely to make this decision.
It would assist in keeping the demand component in place, looking after families, and no longer obliging businesses to pay that odious 25% out of reserves; supposing that they even have any. But many scientists are now talking in terms of years, not months, to defeat this virus. And economists are becoming bolder in projecting a market collapse worse than the Great Depression.
We live in hope. We unite as communities; as provinces; as countries. Many find solace in families and religion. Being powerless is not a normal human condition; but recognizing it, in this instance, at least relieves stress (and stress only renders one more vulnerable).
We all keep talking about social distancing and applying it as best we can but it is important to remember that this distancing process is not a cure and will not eliminate the virus. It will merely slow it’s spread.
Hopefully if we slow the spread enough it will enhance our medial system’s ability to treat the cases as they appear. Also it will gain time to research a cure or even just a more effective treatment for symptoms. It will maybe allow society to build up that good old “herd immunity” over time without too many deaths.
The financial vitality we need to restore will not happen until we can all move about and take part in activities that generate business again and this will not happen with strict social distancing measures. in place. So we are in a wait and see mode here and nobody knows for how long. The social distancing measures, if well applied, are the only practical steps the average citizen can take right now so we need to be careful to follow the guidelines.
New Zealand as an example, has imposed very strict rules for a 4 week period and this seems to be on the verge of eliminating the virus from their Country. It is worth looking at how they have done it. We are bigger and not as isolated by nature as NZ but their methods are worth looking at.
No matter what we do it may be some time before things return to anything like normal here. We need to continue the isolation process, especially as this holiday weekend and better weather arrives. Don’t get careless.
I understand the sentiment: small businesses are the lifeblood of our community and we do not want them to fail. But the fact is the easiest and best way to help small businesses is for government to have a realistic plan to get out of lockdown. What is victory? Zero cases over multiple weeks.? That may never happen, even with a vaccine. We need some normalcy once the top of the curve is behind us. Our future as a community and society depends on it.
If handing money to workers is an incentive not to work, how does one explain the amount of volunteer hours that are being worked across this great country for zero dollars. It seems to me that volunteer work just might be the hidden engine!
Many times I’ve seen businesses declare bankruptcy, then re-open under another name. I’m not sure how that works, but Bad Boy is one example of opening under the same name.What happened to their previous debt?
As I read all the comments from people I think this all could be about any small town in Ontario and very likely all of Canada. There is no way for a lot of small businesses to even think of making ends meet while being forced to close down and if or when they can reopen it’s going to be almost impossible for them to make up for lost revenue. And having to repay more loans will leave them in terrible trouble. It’s going to be sad to see many not make it. Not just in Huntsville but all across our great country.
Britt…..There will always be small business…..just perhaps not the current purveyors. If there is a demand there will be business (and hence jobs). So it is vitally important to ensure that demand construction is maintained.
To add perspective, there are over 1.2 million small business in Canada. But every year from 2010 to 2015 (during a dramatically growing economy) 95,000 new businesses were created and 85,000 small businesses went out of business. From October 2008 to October 2009 (“the Great Recession”), over 400,000 job were lost due to small business insolvency. The actual number of insolvencies in small businesses is impossible to determine as many would be sole proprietorships.
Small business bankruptcy is a very natural and healthy part of the business cycle. But there can be no small business recreation without demand.
On a final note….Study after study has disproven your mythical notions about “handing money to consumers being a disincentive to work” etc. Indeed, my favourite Progressive Conservative former Senator Hugh Segal (not your usual “commie leftist”) has a new ‘book “Bootstraps Need Boots”. In it he makes a compelling case for a guaranteed minimum income to “end poverty”; “save government money” and boost Canada GDP…..all at the same time
Consumers and small business are joined at the hip Paul. One cannot survive without the other. I think however the best way to kick start the economy is by ensuring consumers have jobs which means small business must survive. Do simply hand money to consumers would be a disincentive to work, increase our debt load & taxes and weaken or economic position. Private business is the engine that moves our economy. An overloaded bus with no engine and passengers that don’t have jobs will not move.
The effects of covid 19 on Main Street will be longer and more severe then we think.
The failure rate of small business in a normal retail environment is greater than 50% in the first 5 years and of those only 50% or less make it beyond 10 years. The failure rate for traditional retail has further increased with competition from online retailers. Now ad Covid 19 to the mix. Sales drop to zero as Mary indicated. Even if Main Street is open by July 1 I don’t think it will be business as usual for quite some time. The cycle of tourism and summer camps (52 in Huntsville) will be interrupted and significantly lower for 2020. Consumer spending will tighten in general until the unemployment rate decreases and we are comfortable with our new debt loads.
Many retailers on Main Street generate over 50% of total annual sales in July & August. The rest of the year can be a struggle to break even. So missing July & August is like missing a full year. Retailers won’t even have a chance of paying down their new found debt or deferred taxes until the summer of 2021.
My comment reads more negative then I first intended but having your eyes wide open and anticipating all possibilities is really important to survive in retail. On a positive note there is no town or Main Street I would rather be in then Huntsville.
I think that it is worth noting that “Government” is not likely to make everyone financially whole at the end of this epidemic.
If the shut down of the economy lasts only 6 months, the loss of economic activity would be expected to total approximately $250 billion (Based on GDP of 1.64 trillion per annum and a 30% loss of GDP during the shutdown…… $1,640,000,000,000/2 x30%). This of course would be in addition to all levels of government’s annual spending of $650 billion.
So either everyone shares equally in the economic pain or governments prioritize who receives what level of support.
It seems to me (and this likely is not to be popular) that the government needs to ensure that the demand remains whole when the economy re-opens. While we all know very wonderful people who are business owners; they do not own the “demand” for products and services; they only supply that demand. Of course, there is some inefficiency in rebuilding businesses to meet the demand. And it is the demand that creates jobs not the business. So clearly, governments’ resources should be directed at ensuring consumers are made whole.
To that end, the CERB programme is clearly insufficient. In 2015, the median after tax income of citizens in Huntsville was $29,016 (accounting for inflation, immediately prior to COVID 19 it was likely just over $30,000). However, the maximum CERB payment is $2,000 per month (or $24,000 annualized). This represents a 20% loss of income for even those in the bottom half of Huntsville’s workforce.
If we want Ontario/Huntsville’s economy to return after the virus recedes, the priority needs to be give greater support to consumers. Only in that way, will there be demand (and taxpayers to clean up the debt after) to support small and large businesses of the future.
You have clearly identified the layers and layers of ramifications for small business owners and their communities, Mary. It is so important to raise these issues and increase awareness of the difficulties facing so many. Although the federal government has stepped up to meeting unprecedented financial challenges facing all Canadians, the support for small business, as you have pointed out, is not what many may think based on news reports and government communications. As a retired teacher as well and like so many others employed by large corporations and government, I have had the luxury over the years of having had an income that has never been impacted by economic downturns and consequently never had to face the hardship small businesses face during difficult days. Small businesses have always borne the brunt of recessions etc but never anything like what is happening now. Unprecedented times require unprecedented solutions! Thanks for shedding a light, Mary.
Well said Mary, and thank you.
Small business owners are constantly providing, be it though paying wages, payroll remittances, HST collection, community donations and support. We very rarely, if ever, take anything back other than our hard-earned wages. Most also pay better than minimum wage, so we can keep our talented and valued employees. It’s fair to say that small business and entrepreneurship is the backbone of any proper economy, for all of the stated reasons.
We work under strain and uncertain conditions to produce: there is no safety net, no benefits (in many cases it is unaffordable), no pension, no payed time off. We always have to produce, or we lose everything.
As Mary pointed out, many small business owners are carrying debt, or have cash flow problems –especially in a tourism based area where budgeting and planning is essential, and one bad season can essentially drown them. Is more debt the answer for these folks, when they are most likely already working to pay off their business? Tough sell, for me.
The wages subsidy does nothing for businesses that cannot be open. I personally believe that a reasonable way to help out would be to refund HST remittances that were paid over the last few terms. This is percentage based, and therefore a fair way to determine the amount refunded. This was proposed by the opposition, yet never truly discussed by the federal government in any meaningful way.
In the end, the damage done here could be very real– not just to the business owners, but to the whole town, and the economy in general, and it could have long lasting implications.
An excellent article Mary. We really are all in this together. Canadians are a strong and resiliant force and that includes those of us in Huntsville. By helping each other, we WILL get through this!!