COVID-19 impact: 59% small biz likely to scale down, shut shop

Impact of the COVID-19-hit economy has been felt acutely across sectors. The recovering economy was dealt a heavy blow as increasing cases led to localised lockdowns in the second wave. Startups, and micro, small and medium enterprises (MSMEs) are some of the worst-hit. As many as 59 per cent startups and MSMEs are likely to scale down, shut down or sell themselves this year, as mentioned in a survey. Around 41 per cent are out of funds or have less than a month's fund left, while 49 per cent of startups and MSMEs are planning to reduce their employee compensation and benefits costs by July.

"Second wave of COVID-19, related lockdowns and curfews and their concomitant impact on the economy have once again brought along very high levels of uncertainty, struggles and challenges for Startups and MSMEs to find growth in their business and gather the necessary funds and capital to run their operation," stated LocalCircles that conducted the survey.

The survey found that when asked where they see their business heading in the next six months, 59 per cent of startups and MSMEs said that they expect to scale down, shut down or sell off. Out of that 37 per cent said they would scale down, 14 per cent said they would shut down and 8 per cent said they would sell off. Only 22 per cent of startups and MSMEs see growth in their business. They are mostly likely to be engaged in online sales, health, FMCG or digital payments. Out of the respondents, 19 per cent did not have an opinion.

When asked about how long they can continue with the cash in hand based on the current monthly operating costs, 33 per cent said they have less than a month worth of cash, whereas 8 per cent said they are already out of cash. As many as 22 per cent have more than 3 months of cash, while 11 per cent have for over 6 months and 37 per cent have funds for 1-3 months.

The survey sought to find from respondents their plans for the next 2 months or what they have done in the past 2 months to better prepare to sustain their business. Reducing advertising, marketing and new initiative costs were the preferences for 7 per cent, while 9 per cent said they would reduce employee compensation and benefits costs, and 13 per cent said reducing other fixed operational costs. Breaking down the responses, 7 per cent chose Options 1 and 2, while 13 per cent chose 2 and 3 and 33 per cent chose 1, 2 and 3 options. LocalCircles stated that per aggregate response suggests that 49 per cent of startups and MSMEs plan to reduce employee compensation and benefits costs by July.

When asked if the government should let PSUs provide price escalation on all MSME/small business contracts where supply of commodities like steel, copper is involved, 88 per cent said yes. Moreover, 92 per cent small businesses want Centre to extend government/PSU contracts by 3-6 months as there has been a delay due to lack of labour force.

The survey was conducted to gauge the challenges faced by startups and MSMEs amid the pandemic. The survey received more than 11,000 responses from over 6,000 startups and MSMEs across 171 districts in India.

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