The Bureau of Labor Statistics (BLS) released unemployment data on May 8 showing that the U.S. economy lost over 20 million jobs in April, and the unemployment rate spiked to 14.7 percent, the worst since the Great Depression. However, due to the way the reporting was calculated, this number is estimated to be closer to 20%. A recent white paper from the Becker Friedman Institute at the University of Chicago (COVID-19 Is Also a Reallocation Shock) estimates that many of the layoffs people expect to be temporary will actually become permanent.
“Our best guess is something like 60% of the employment reduction is going to be temporary, and 40% is going to be permanent,” said Nicholas Bloom, an economics professor at Stanford University and one of the co-authors of the paper. “Looking through history at previous recessions, often these temporary layoffs unfortunately turn out to be permanent.”
Already, there is evidence of that happening. MGM Resorts told employees in a letter this week that some of those who are currently furloughed may ultimately be laid off, if business doesn’t bounce back by the end of August. Other big companies, like Nordstrom, J. Crew and Neiman Marcus that initially furloughed employees are now starting to close some of their locations or file for bankruptcy, which will likely lead to more permanent layoffs. In the wake of other disasters, FEMA has found that around 40% of small businesses never reopen.
Just two months into the pandemic, nearly 70% of Americans are now unemployed or afraid they will lose their job in the coming year, according to the most recent Marketplace-Edison Research Poll. Almost a quarter are not at all confident they would find a new job within six months. Confidence is even lower among those without a bachelor’s degree, and those making less than $50,000 a year. With the unemployment rate currently higher than it has been since the Great Depression, that is likely a realistic outlook.
What Can You Do?
The “Great Recession” of 2008 was not that long ago, and taught many of us lessons–be responsible for your own destiny, and diversify your offerings. The Grady Firm, P.C. was founded during the height of this recession, and the lessons from those days have never left the back of my mind. By 2013, there was an uptick in the number of startups that were developed, particularly in the Silicon Beach and Silicon Valley areas of California. Many of these new ventures were the latest new “app” idea, whether they were tested in the marketplace or had a real demand for their offerings. While some of these nouveau “CEOs” succeeded, a high number of entrepreneurs returned to the workforce within 1-3 years. I watched as their LinkedIn profiles changed from executive titles back to employees.
Less than a decade later, many people may find themselves in the unemployment boat again, and many mid-level employees and managers may find themselves without a paycheck for the first time. The hope is that we will pull ourselves up out of this economic slump and recall the lost jobs, or make new jobs. But in the meantime, we all have to eat, pay rent/mortgage, and support ourselves, and perhaps our families. What’s a person to do?
The best way to take control of your destiny through entrepreneurship. However, we may learn a thing or two from the unfinished destinies of the app developers in the mid-twenty-tens: if you really want to take care of yourself now and in the future, develop a business that is in demand, and as recession-proof and possible. This may involve learning a new skill, partnering with a friend, colleague, or family member, and doing market research before diving in. It will undoubtedly involve reading books, taking online courses, and working with experts, such as CPAs, lawyers, and business advisors.
An excellent place to start is with free counseling from the Small Business Association (SBA) and its Small Business Development Center (SBDC), or SCORE! They offer free one-on-one counseling, and cost-effective classes on intro to business topics such as bookkeeping, marketing, business plans, and effective social media campaigns. I worked with several counselors at SBDC in the first year of my law firm, and keep in touch with my mentors to this day. They taught me the business basics and have been an outstanding resource to me and the numerous referrals I have sent their way over the years. We are privileged to have these free resources in the United States–they are not always available in other countries.
What Kind of Business Can I Start?
While people have been successful in all types of businesses, if you have limited capital, first consider a business with low overhead and little to-no inventory requirements, and one that can be operated virtually/remotely. Employees who were fortunate to receive a severance agreement may have some capital to invest in their new venture. For those without a severance or savings in the bank, they may be starting with just a few hundred dollars, which is possible when you are lean and provide a service-based business. Here are some business ideas covering a range of subjects with lower startup costs than other ventures:
Esthetician and Skincare Specialist
Law Firm owner
Quick Books-certified assistant
Social media assistant
Truck owner-operator (dump truck or over-the-road)
The Fine Print
Before proceeding with a new business, find out what types of permits and licenses are required. Each state has its own requirements. For example, California residents can search their requirements by business type on the CalGold website, and must make sure their business complies with AB-5 requirements. You may also need a seller’s permit, and a local business license.
In addition, you must consider whether to form you business as a sole proprietor, corporation, or LLC. A CPA can advise which is the best option for tax purposes, while a corporate attorney can assist with the business formation, contract drafting, and legal compliance. Keep good financial records from the beginning, and don’t commingle your personal and business bank accounts and credit cards.
Do things right the first time, instead of taking shortcuts which will cost you more down the road. Have a written agreement in place any time you partner with someone or exchange money for goods or services.
Finally, talk about your proposed business venture with your family and friends. Will they be able to support you emotionally and/or financially? Is this an idea you can see yourself carrying out years into the future? What pitfalls might they see that you can’t?
Entrepreneurship can be a rewarding and lucrative experience that affords you the freedom of your own schedule on your own terms, and can leave a legacy for your family. What are you waiting for?
About The Grady Firm, P.C.
The Grady Firm has successfully advised business owners and expanding companies since 2012, and is ready to help you on your journey of entrepreneurship. Our motto has always been to help clients be successful and self-sufficient. Check out our business formation packages in our online store, or schedule a consultation to learn about how we can help you with business counseling and planning, contacts, and employment law.
This article does not constitute legal advice. Always confer with a licensed CPA and attorney for counseling specific to your situation.