Why Small Businesses are A Big Deal for Investors

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The majority of sophisticated investors know that there are more opportunities to create wealth during recessions than at any other time in the economic cycle.

Despite the fact that business leaders, policymakers and regular people have sounded increasing alarm about how small businesses will weather the COVID-19 pandemic, a surprising number of these outfits, seem to be hanging on.

COVID-19 apparently is packing a punch, but not a knockout — so far. Rather than wiping everyone out, the pandemic is creating winners and losers.

Michael Powe, director of research for Main Street America, a Chicago nonprofit that works with local partners to revitalize downtown districts throughout the US, conducted a survey of nearly 6,000 small businesses in late March and early April. It showed that almost 80% had closed for some period of time in the first weeks of the pandemic and that entrepreneurs needed help.

The data suggested that around 7.5 million American small businesses would close by the fall of 2020.

That didn’t happen. Survey data that Powe collected in August showed that less than 10% of the businesses he expected would shut down actually did.

Why is Small such a Big Deal?

Beyond dollars and cents, small businesses cement communities and represent the backbone of American society. Local places like coffee shops become routine gathering places and local business creates a virtuous circle, plowing money and resources back into the community.

A large company might shell out payments to accountants in Arkansas and lawyers in New York, but a small local shop is likely to patronize service providers in the neighborhood. This is because local businesspeople have a stake in community welfare.

As an integral part of communities across the nation, small businesses represent a much more robust and sustainable investment opportunity than their larger counterparts.
This is really based on the fact that it is much easier to add value to a small, growing company than it is to maintain value in a large ongoing concern and that has much to do with the level of support from the local community.

The Silver Lining

The pandemic has shifted resources from some players to others. Some surcharges and tips that used to wind up in the pockets of restaurant servers now go to delivery workers. Retail and other high-touch service businesses such as boutiques and hair salons struggle. Tech businesses seem to thrive. Many communities, particularly in rural areas, reported net increases in businesses in a December survey.

Experts have been surprised by the scope and speed of some business’ success. Thomas M. Sullivan, a small-business policy expert at the US Chamber of Commerce, points to data from the Washington think tank Economic Innovation Group that suggest the formation of new businesses likely to hire employees throughout the second half of 2020 outpaced similar activity in 2019.

After the 2008 recession, it took years for this type of hiring activity to resume. Sullivan believes the speed this time around is a sign that businesses are successfully pivoting and innovating.

Finding the Bargains

The Faison Capital team has combined experience of financial and commercial markets of more than a century. We understand the different dynamics that come into play during each phase of an economic cycle.

Our analysts are dedicated to sourcing the small businesses that simply lack the liquidity to take their firms to the next level. We provide the very best in cloud-based tech solutions to improve productivity and distribution as part of a unique growth strategy we implement with all the small businesses we acquire.

Our due diligence process is particularly stringent to identify growth opportunities across a wide range of commercial sectors. We are looking in particular for businesses that have shown consistent profitability in recent years, with the potential to scale rapidly to increase sales revenues significantly in the first year, and sustainably over time.

If you want to find out more about how you can increase your wealth with an investment in America’s small business sector, contact us to arrange a call TODAY.

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