“I’m just making sure we stay active on social media… and people still know that we’re here,” Yuan says. The entrepreneur doesn’t want to reopen until she understands how to conduct business that isn’t in a “gray area.” Yet between paying back deferred rent and dealing with lost income, Yuan’s not even sure she’ll have enough cash flow to reopen when it’s safe to do so.
For many who don’t own a business, it can be difficult to wrap your head around what some of these decisions look like on the ground. But the reality is that small businesses often don’t have enough funds to handle a severe financial crisis. Most of the public assumes businesses have more cash in reserve than they actually do, says Stephen Green, an economist and Director of Operations at Pensole Academy. “I’ve heard some people say that a lot of businesses won’t last two or three months of this,” Green says. “But the reality is most businesses won’t be able to last two or three weeks.”
Should you save your business or just shut down?
As some independent businesses vow to stay open and others halt production, Melissa Schulman, founder and owner of Yoga-urt, an organic, vegan frozen yogurt shop in L.A., wrestles with how she should proceed every day. “I really don’t know what the right answer is. I try to think about my team members, my customers, think about what’s best for Yoga-urt,” Schulman tells Supermaker in a phone conversation. “Every small business owner is struggling with this question.”
Deciding on whether to save a business on the brink of decline or call it quits often boils down to our own emotional connections. “People really need to do their cost accounting, but they also need to be aware of their cognitive biases,” Siri Terjesen, a business professor at Florida Atlantic University, says. “And one bias we have is we want to hold onto everything when sometimes it’s better to just let go.”
But letting go hasn’t been easy for Schulman. “I cried pretty much the whole weekend and thought, ‘Oh my God, this has been like nine years of my life, my whole savings, my 401(k), I’ve given it everything that I have and I’m going to lose it.’”
In deciding whether to save or scrap a business, economists agree that it really depends on the industry. David Audretsch, an economics professor at Indiana University, says the decision should rest on how long this crisis lasts and the proportion of a business’s fixed, sunk, and variable costs.