Zero income is beyond pretty bad

Newshub reports:

Labour MP Deborah Russell is facing backlash over remarks described by commentators as “offensive” after she suggested small businesses hadn’t prepared financial reserves to cope with a setback like COVID-19. 

Dr Russell, MP for New Lynn, joined the COVID-19 Epidemic Response Committee by videoconference on Tuesday and raised concerns about small and medium businesses with Finance Minister Grant Robertson.

“We are seeing a number of small businesses are really struggling after only a few weeks in a pretty bad situation, which must speak to the strength of those small businesses going into this lockdown,” Dr Russell said.  

“It worries me that perhaps people went into small business without really understanding how you might build up a business or capitalise in the first place so that you have the ongoing strength to survive a setback.”

Robertson shot her down, saying “I’m not sure I totally agree with that prognosis.”

Dr Russell’s remarks have been described as “utterly tone-deaf” by left-leaning political commentator Chris Trotter, “gobsmacking” by right-leaning commentator Trish Sherson, and “offensive” by host of The AM Show Duncan Garner.

Deborah’s not the first, and won’t be the last, MP to say something potentially valid, in a rather bad way. So I don’t want to turn this into a bashing for her, as I’m sure she regrets her choice of words.

But I do think it is worth analysing two parts of what she said, because there may be others out there who share a misconception.

“really struggling after only a few weeks in a pretty bad situation”

You can’t call a total shutdown with zero income a pretty bad situation. It is an externally imposed disaster (for valid public health reasons).

A pretty bad situation for a small business might be income down 10%. That can be the difference between profitable and break even.

A 20% drop in income is huge. Then you’re talking staff layoffs, or reduced salary for the owners etc.

A pretty bad situation can be roadworks outside your store for a month leading to less custom. Or a new cycleway removes carparks for your customers.

But being closed down for somewhere between five and eight weeks is a disaster. That can drain your cash reserves within weeks.

people went into small business without really understanding how you might build up a business or capitalise in the first place so that you have the ongoing strength to survive a setback.”

I think also shows a lack of understanding of small businesses. Large businesses build up capital. The corner dairy generally doesn’t. The plumber doesn’t. they often start with very little capital and a bank loan.

And again a government mandated shutdown of the economy is not a “setback”. It is a once in a 100 years event.