The COVID-19 pandemic has hit small businesses hard in Massachusetts, perhaps harder than many other places in the U.S. Around 22% of small businesses in the state have been forced to close down, or reduce their operations awaiting a better economic environment. The national average is around 17%.
What exactly is considered a small business?
Small businesses are those businesses that typically employ fewer than 150 employees or have annual receipts of less than $7.5 million, but the actual definition provided by the federal Small Business Administration (SBA) is a moving feast. What is regarded as a small business is designated on an industry specific basis, with the figures quoted above given for a typical small retail business.
Many small businesses don’t employ anything like 150 employees. They are often run by an individual or a couple, the typical mom and pop businesses that with a combination of hard work, thrift and enterprise thrive when things are going well. Things aren’t going well for mom and pop businesses going into the fall, even those that survived the Covid-19 restrictions and the reopening that followed.
Whatever the definition, don’t make any mistake. Small business is a big deal across the U.S. and here in Massachusetts it’s no exception. Early on, when the disease first started affecting business, and non-essential businesses were forced to stop operating, it disproportionally affected the smallest of small businesses. This meant the hospitality sector, bars, cafes and restaurants, tourism, personal health care, fitness centers, laundries, and hairdressing salons were the most affected. The easing of restrictions has allowed the sector, what remained of it, to resume business, but the growing infection rate elsewhere across the U.S., social distancing, higher baseline unemployment and natural reluctance to use businesses where face to face contact is hard to avoid has meant that many small businesses in the state have simply not survived.
Federal funding has kept many small businesses alive
Small business owners may not be earning as much as before, or anything at all. There is a limit to how much a small business owner can adjust spending. Rent has to be paid, utilities, state taxes and wages. There may be loans to repay. The main funding for small businesses has come from the federal government, not the state government, in the form of a forgivable loan called the Paycheck Protection Program (PPP), made available as a result of federally approved legislation earlier in the year called the CARES Act. The reality, though, for many small businesses, is that whatever PPP loan was secured to keep a business afloat, is fast running out for many. It has been reported by the Boston Globe that up to 36% of Massachusetts small businesses are likely to run out of cash to keep their business afloat by the end of August. Unless an additional rescue package is legislated and further funds are dished out soon, many of those 36% of businesses could wind up selling their business or even filing for bankruptcy.
The legal alternatives for small businesses facing financial collapse in Massachusetts
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Keep paying your bills, reduce overheads, take out a loan and wait for improvement in the economy / health
This is the strategy that most small business owners are using. PPP loans have certainly helped and the effects of the downturn in the local and national economy are highly localized. Some small businesses have done well out of the pandemic; others have gone to the wall or are on their way while others are surviving. There are of course so many factors at play that there are no hard and fast rules about what you should do. A business adviser or business law attorney could provide valuable advice about your options.
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Sell your business to someone else
Even if you have found that your business has done badly, it doesn’t mean it can’t be sold. A buyer may have more capital to introduce improvements in technology/ modernize equipment or simply have more innovative ideas. Selling a business, however large it is, shouldn’t be done without legal help. You need a business law attorney to help prepare the pre-sale documents. These include things like:
- valuing your business;
- tax returns;
- review of profit/loss statements;
- trademark ownership verification if applicable;
- customer list review;
- business bank statement cross-referencing;
- business contract review;
- copyright and patent rights.
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File for bankruptcy
This is the last option that should be considered but thousands of small businesses have already gone down this path, filing for Chapter 7 or 11 bankruptcy with the help of a business law attorney. You do need to attend a bankruptcy court, there are fees to pay and you may have to attend at least one meeting arranged with your creditors. Filing for bankruptcy is a serious decision, but once it has been achieved, it can bring a temporary sense of relief to a financially stressed out small business owner, provided that business losses and personal finances have been carefully separated during the bankruptcy proceedings.
The good news is that even after winding up a small business through a bankruptcy, it is actually perfectly legally possible to start a new business all over again, if conditions improve in the months that follow.
Contact an empathetic and experienced Massachusetts real estate and business lawyer
Trying to run a small business in the present conditions of rising infections and no vaccine on the horizon as yet can be challenging to say the least. If you need legal help to decide which course of action you should take and what the legal requirements are, contact an empathetic Massachusetts real estate and business lawyer before you take the plunge. In Winchester MA, contact the Law Offices of Richard Mucci at 781-729-3999 for a free consultation