Small Business Planning in the Age of COVID-19

The American College of Financial Services
May 13, 2020

With the COVID-19 pandemic changing all the rules of financial planning and turning people’s lives across the country upside-down, few are more subject to the economic impact of the virus than small business owners who find their stores shuttered by social distancing orders or unable to make ends meet in the stay-at-home world.

Steve Parrish, co-director of our New York Life Center for Retirement Income, sits down in this audio interview to talk about the unprecedented shock of the pandemic on small businesses, the perils of the new status quo, and even some glimpses of light at the end of the tunnel.



In these trying times, The American College of Financial Services is here to help with the resources and expert advice you need from our profession’s top thought leaders. For more, visit The College’s COVID-19 Resource Center.




Jared Trexler: Being your lifelong learning partner means continuing to deliver the knowledge you need when you need it. COVID-19 has brought many new, unique challenges to the table, including for the over 30 million small businesses in the United States today. Steve Parrish joins us, Adjunct Professor of Advanced Planning and co-director of the Center for Retirement Income, to discuss how this public health crisis has completely altered the small business landscape. Steve, thanks for joining us today.

Steve Parrish: My pleasure.

Jared Trexler: So we will likely caveat certain questions moving forward with before or after COVID-19. With the pandemic’s arrival on our shores, as that line in history can you give us a sense of how the typical small business was and now is fairing?

Steve Parrish: Well, sure. And obviously there's no typical small business, but what we can say is that small businesses in general, we're operating in a fairly manageable environment. I mean, borrowing rates have been low, taxes and wages, they've been manageable, the regulatory environment, that wasn't too oppressive and consumer demand was pretty good. Probably the one most challenging aspect of the environment pre-coronavirus was the comparatively low labor pool. Well, a few weeks later, look at what's going on. Suddenly, consumer demand, except for certain sectors, just plain vaporized, and in my mind, the regulatory environment has turned almost toxic. Small business owners are confused with what safety standards to follow, and they are absolutely overwhelmed with the new federal and local laws that, don't get me wrong, they're meant to help, but they're also causing stress for the business owner. So we're looking at a recession instead of a bull market.

Jared Trexler: Let's focus on that word stressed, because even pre-Corona, the economy was stressed in part, but was overall very strong. We obviously know all of the financial implications of COVID-19 physical distancing hampers all businesses that require that physical foot traffic. What are the major issues that you see hitting small business owners? And if you could, let's start by looking at it from the perspective of a business owner taking care of him or herself, what are the challenges?

Steve Parrish: Sure. When we're talking about small businesses, the human factor, that's even more predominant. These entities have, let's say one or a handful of rainmakers, and so when those rainmakers suffer, the impact on the business is felt immediately. This is different than the usual disaster recovery scenario that we're used to planning for and that the owner is not addressing just external threats, but also very personal existential threats to their own life and limb. So the owner has to take care of himself or herself first and how to protect their own safety and that becomes tough. How do you communicate with the outside world? How do you maintain good mental health?

Jared Trexler: Now, Steve, what differences or new challenges come in with the business owner as an employer? Can you talk a little bit about the struggle between protecting your employees and just surviving on your own?

Steve Parrish: That's exactly the challenge. I mean, survival versus, you could call it paternalism. I mean, we see the news, stories about the business owners keeping staff on and providing free product. It makes us feel good, but realistically, most business owners have a payroll to make and they're conflicted about how to do it. The questions they're asking, do you cut staff? Do you instead cut wages and benefits and hours, or maybe a scale back on operations, or maybe a tap into reserves to make payroll or at the end of the day, do you borrow? So for many small business owners, you name the central issue, how as an employer, are you going to survive with minimum harm to your own employees? Because that tends to be very important to them. And by the way, for many small business owners, the suppliers are also part of the equation, they are seen as part of the team that the business owner wants to keep protected.

Jared Trexler: So let me ask you a follow up to that. Many small businesses obviously have dealt with hurricanes, natural disasters, events that come and go in a very short time-span and then they pick up the pieces and rebuild. How do you think the equation changes for small businesses who are trying to gauge whether this is a short, medium or long-term problem, with a virus that no one can see smell or project what's going to happen several months from now?

Steve Parrish: Well, similar to what I said before about disaster survival and the plans that small business owners often have for dealing with a disaster, this one's a tricky one because it's not a fire. A fire is a one-time thing, and it's not an economic downturn where you're starting to do long-term planning. This one, we don't know what the tail is on it and it really comes to me as an idea in two phases. One is the immediacy of the virus itself and how do you deal with that? And that's mainly what we're focused on, but the second is how do we deal with the repercussions and the consequences of that as a long-term business model? So, I think business owners really have to take a two-pronged approach. One is to deal with the business of staying in business, but the other one is somewhere along the line of, each day they have to think long term and say, what's going to change and how am I going to deal with that?

Jared Trexler: So finally, in many small businesses, the owner is also a key employee. How do you assess the personal challenge of these stay at home orders and how could company benefits impact personal finances?

Steve Parrish: Right. The business is the business owner’s one and only job. So if it goes down, so does the business owner’s own safety net. We always advise business owners to pay yourself first, but how do you do that when you have no pay to go around? And what about benefits? Now, interestingly, recent data suggests that there's been an uptick in signups for Obamacare health care plans. What's going on is small businesses that can't afford health insurance anymore are canceling it. And that forces not only employees, but those business owners who are the key employee to seek coverage through the exchanges. So they are affected directly by whatever benefits are taken away by the owner, from the business.

Jared Trexler: What divergence, if any at all, are you seeing in the small business community by sector?

Steve Parrish: Well, certainly this is like nothing we've ever seen before. I mean, this crisis really doesn't lend itself to tracking by sector, which you obviously can do in some cases or modeling by industry. Now, sure we know that airplanes and hotels are suffering while certain online retailers, they seem to be flourishing. But especially with small businesses that falls apart, small businesses are just one cog or at least often one cog in a large supply chain and so it doesn't lend itself to pigeonholing the business by the product or the service that it provides. And not all small businesses are restaurants or hairdressers. I mean, many make a widget that goes into doodad and we really don't know how things will work out because the doodad I'm talking about may be just part of a whatcha-ma-call-it. My point in all that is forecasting in its usual sense is frankly probably a waste of time at this point.

Jared Trexler: So a huge part of where business owners are right now is affected or impacted by federal legislation, notably the CARES Act. Can you give me a quick-hit impact of the CARES Act on the business owner and the consumer?

Steve Parrish: Sure. Obviously, the CARES Act is beyond huge, so it's hard to discuss, but in general it should be seen more as a survival legislation than as a stimulus package. And its two main targets, as you said, are the business entity and the consumer. So as I look at the CARES Act, I see it, some of it as a shotgun effect and some of it is a rifle. In other words, a lot of it is throwing money widely and hoping that it helps and some of it's very directed to key sectors. So let's take the consumer, some of the provisions in the CARES Act are shotgun ones in the sense of, for example, giving everyone an IRS cash payment. Another one would be allowing essentially anyone that's an employee to raid their own IRAs and borrow out all of their 401(k) loans. The rifle approach is more things like, let's say, waiving of required minimum distributions this year. Why would they do that? That's out of a sense of fairness so that people aren't forced to liquidate their own stocks when the stock market's down.

Or another one I think of is, they gave us this one time, $300 above-the-line charitable deduction, while that's to encourage the haves, to help the have nots during these tough times. And in many ways, if you think about the expansion of unemployment benefits, it is a targeted way to address those who are most challenged by the COVID-19 crisis, those people who work. So let's transition to the business. I think you can look at the CARES Act and its provisions, think about it as a combination of loans and grants and tax advantages. And the aim is clearly to keep the business’ employees employed because it helps the economy and to keep the business in business. So there, the shotgun really is the PPP loans program where they're making it available to so many small businesses and also the ability to defer some of the payroll taxes. As far as rifle, that's the more industry-focused parts like the government’s deal with the airline industry, things like that.

Jared Trexler: So what should a business owner be looking at as to how the CARES Act and PPP can help them? So let's break this up. How should the business owner look at it if they need to maintain payroll?

Steve Parrish: Well, the PPP process has obviously been a useful aid to help maintain payroll. I mean, look how fast the first wave of it went away. The basic idea is to get a cash loan that is forgivable through keeping up with your payroll. Now, another feature is a deferral of the employer part of payroll taxes. So look into this, if I'm a business owner, I would look into this federal government program, why it's still out there, but part of the process should be forecasting where your business is going to go. The law has different benefits for different situations and you really have to weigh which is truly beneficial for you. So you may need to ask yourself questions like, “will I use additional cash flow to retain workers and maintain payroll or will I use it to make a mortgage interest, a lease or utility payments?” “And then will I use additional cash flow to stay in business while I'm working down my payroll?” The answers are really going to determine how you proceed. You may want a PPP loan if you plan to defer part of payroll taxes; you may not because it could cause tax problems.

So the bottom line is don't just look at this as a loan from Uncle Sam, you might as well take it while you can, look at this as a tool to help you tactically deal with the immediate and the mid-term needs of your business.

Jared Trexler: What about if these businesses need a quick cash infusion?

Steve Parrish: Well, I think it's the same answer. Not all loans are the same. So really ask yourself how much do you really need? Maybe just thinking outside the box here, but maybe you work down your inventory and maybe you have to furlough some staff for a short period of time. And then you only use the loan as a means of covering your short-term liquidity needs. And that way you won't owe as much in the future and have a prospect for immediate and long-term growth.

Jared Trexler: Sure, as you mentioned earlier, there's a lot there. This legislation is a bear. Do you have any thoughts on how small business owners should tackle it?

Steve Parrish: I do. I'm from the Midwest and I've worked with agribusiness for decades. And for all the kidding, we give farmers about their ability to work the system, I'll tell you, farmers are real pros at building the government's programs right into their own business plans. And so I think that the business owner really needs to recognize that these various government programs are now going to be an element of their business and they're probably not likely to stop soon, even as things calm down as far as stay at home and that kind of thing. So just like learning, as a business owner has in the past about payroll taxes and workers' comp and OSHA, I think the business owner who wants to survive and thrive really needs to learn about these programs. They are being tweaked almost daily and that's just the reality of it. So the bottom line is the business owner needs to get some really good help, some really good advice. And then they have to build that into their business plan, to acquire this expertise about other programs, whether they learn it personally or they do it through delegation.

Jared Trexler: So how should financial professionals work with their small business owner clients to assess where their business really is?

Steve Parrish: It's key to understand where the business owner's mind is. The small business owner, I've maintained for a long time, that in many cases, the business owners, the small business owner’s business is their child. And in many cases it's their favorite child. And now that child is ill, it's suffering. And I really think you have to think about it that way. The financial advisor can help through empathy, I mean, most financial advisors will not become experts in the PPP program and they should be careful by the way, not to provide general knowledge when the specifics are the ones that can get you. But the advisor can contact the business owner and let them know that they care and ask them how they're doing. So I think the financial advisor needs to feel them out. Maybe the owner wants to talk about their business, even though they know that you as an advisor can't help. And maybe you as an advisor should make them aware of issues and opportunities that may not have occurred to them.

They're a little busy, they may not have thought about their 401(k) benefits. I mean, the government says, employees can now take all these withdrawals and loans, but what's your plan say? And what steps do you as a plan provider have to take to do this. And while it sounds easy to curtail the employer match and 401(k), remember how does that affect you and your finances as a business owner? And even should you consider the ultimate, do you start taking Social Security earlier than you planned or is that not a good idea? My point is, the business owner really needs your empathy and your information. You need to get them thinking about things like cash flow. It's great that they can defer some taxes now, but if they really thought about how they plan to pay them back, you could be a valuable advisor in getting them through that kind of thought process.

Jared Trexler: So after these discussions with the business owner client, if the result of them is an exit ramp, what issues should they be on top of?

Steve Parrish: Well, you're right. That's a tough one. I mean, emotionally, it's going to be for the business owner a feeling of grief, but financially this has to be really approached as a war, if you will. I mean, you may have lost the battle and your business isn't going to make it, but how do you retreat with the least amount of casualties? So for example, do you really want to get a PPP loan if you expect to have to lay off your employees and become liable for that loan? How do you get the most from your inventory? How do you avoid, or at least minimize the very adverse taxes from liquidation? So the business owner really has to deal with the loss of their business as emotionally detached as possible. They can grieve later, if your plan is to exit, you may have to be looking at more staffing furloughs now rather than later, and avoid building up all these taxes that you're going to owe. And maybe you need to start thinking about bankruptcy options.

Jared Trexler: How can a financial advisor help their small business owner clients level set their expectations to a new normal knowing that it won't be normal?

Steve Parrish: I agree with you. Have you ever noticed the strange terminology we all use? I mean like social distancing, what's that mean? It's really physical distancing. And we brush off our fears of the unknown by just referring to it as the new normal. I think the business owner just has to concede that for the foreseeable future, things won't be normal.

Jared Trexler: Wait a minute, Steve, what do you mean by won't be normal?

Steve Parrish: Well, let's take it by its elements. I mean, let's start with behavioral finance. Does anybody really believe that once the stay in the home rules are lifted, that people would just return to their past behaviors, I mean the same spending habits? They'll fly on a whim, they'll stay at a hotel for a long weekend, come on. And being in finance myself, will the consumer really continue to live paycheck to paycheck? Maybe not. I mean, buying patterns are going to change, savings patterns are going to change, so it's not going to be normal. And then let's move on to the markets. We can expect more business owners to move towards zero inventory model. They learned a lesson and almost as a defensive move, they'll probably obviously consider expanding both their order side and the delivery systems to have more of an online component because that's what they had to work with during this crisis. Markets and products and delivery systems are all going to change. The frustration, it's difficult to anticipate what will really happen.

With the Great Recession, we primarily had a liquidity crisis, with the coronavirus event; really, what we started with was the supply chain crisis. I mean, you had U.S. businesses who couldn't get their components that they needed from the Chinese, and therefore couldn't keep up with demand. But two months later, we see the issue is that supply is curtailed because staff is cloistered at home because you don't have people to do work and demand has all been dried up. So far, we haven't had a liquidity crisis, but come on, with the sheer enormity of the CARES Act and PPP and all that, and the fact that this kind of funding is simply not going to be sustainable, is a liquidity crisis going to be far away? Another one, if there's a second wave experience this year, that's going to introduce a whole bunch of new potential unknowns. And one last point, as Friedman says, the world's flat, global markets they're not going to be normal for a long time. Few small businesses can escape the reach of global economy. So there is not going to be a normal.

Jared Trexler: So we've talked about a lot of heavy topics today. This is a frightening, chaotic, uncertain time. And it's not a moment in time. As we talked about a little bit earlier, this isn't a hurricane, but I'd like to end with rays of light in the distance. Once we are in recovery mode, whenever that may be, what positives will result on the other side?

Steve Parrish: Well, at the risk of sounding Pollyanna, I really do think there are some rays of hope, I really do. At the consumer level, let's look at that. The one, two punch of the Great Recession, and then the COVID-19 crisis, may finally change attitudes so that Americans can once again become savers, hey, they used to be, and they can do it again. Now, at the government level, maybe they, the government, will get it, that we can no longer borrow from our grandchildren with these huge annual budgets, it's going to start exceeding $1 trillion. We've cleaned up our balance sheet in the past, we can do it again. And then at the small business level, this may be the impetus for the next great wave of innovation. Look at the explosive growth and creativity that was generated by the PC, and then by the internet. That little spiky bug broke a lot of the ways of doing business in the last few months. And there will always be that creative business owner out there who figures out the next new way of doing business.

A business owner is going to create some new product that the consumer didn't know they even needed. They're going to come up with a novel way of delivering it and they got to figure out how to do it profitably, even while an ailing economy is struggling to recover. We've done it before we can do it again.

Jared Trexler: And hopefully we will have one of these discussions again. Thank you so much, Steve Parrish for joining us. For more information on the fallout of COVID-19 on financial planning, please visit our website at

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