Approximately 15% of business owners are under age 35. At CLM, we have had the privilege of working with some of them. On occasion, in loose conversation, I have referred to them as “kids” – not out of disrespect, but because I am most definitely not one. Young entrepreneurs are fascinating to me because they are taking risk even though they probably don’t need to – their education, often combined with internships, makes them employable at large firms. The ones who go out on their own are a powerful, innovative, creative force in our economy, and right now they need support and encouragement.
I promise not to get political on this – although, what is “political” might depend on your point of view. The fact is that the effects of the COVID-19 pandemic and widespread shutdowns have devastated the small business community as a whole. Some, helped by prudent use of PPP funds and the availability of disaster-relief loans, have managed to thrive and will likely survive, but in the macro-sense, that has not been the case. Statistics from the National Bureau of Economic Research indicates that during the height of the pandemic, the number of active business owners in the United States dropped by 22% between February and April, and continued to decline through the early part of the summer. These impacts cut across all racial, ethnic, and gender classes of business owners – but today, we are focusing on the young entrepreneur.
Even pre-COVID, research that I have seen indicates that small business ownership among people under age 25 has been declining slightly for several years. It is difficult to find up-to-date data, but the same trend even applies among those aged 35-54.
As you might expect, younger, smaller businesses generally have less working capital than their more-established counterparts (which means they will run out of cash sooner), and they have less access (due to the cost) to professional business advice. If you follow what we do, you know the importance of sound fiscal management, which combines best accounting procedures with fine-tuned profit modeling, compensation structures, and balance sheet management. Young entrepreneurs, though often well-educated, haven’t yet had the time or the money to invest in these concepts – and that makes them vulnerable. The reason that disasters like COVID are particularly harmful is two-fold: 1) Forced closures (full or partial) and reduced consumer demand and 2) Increased reliance on government bailout funding.
On the flip-side, our youngest and most creative entrepreneurs are quicker to pivot, adjust, and move forward with new ideas that solve new consumer needs or problems in their communities. If you are a well-established business owner, you remember the challenges you faced in the early days. Find an opportunity to mentor a younger entrepreneur that you know, or invest some time in speaking to business students about how you built your business, how you control your risk, and how you employ good fiscal management strategy to ensure your survival in any kind of economic condition.
At our firm, we will do the same.