For small biz owners, tapping into savings a risky business
NEW YORK — When the coronavirus outbreak forced cruise lines to cancel trips to Alaska, it wiped out Midgi Moore’s tour business, leaving her with thousands of dollars in deposits to refund.
Moore’s company, Juneau Food Tours, didn’t have enough cash on hand. So, she withdrew $30,000 from her retirement account — a painful decision for a 56-year-old starting to look forward to the day when she can stop working.
“It was a gut punch,” Moore says.
Many business owners are tapping the money they socked into personal savings and retirement accounts to withstand the pandemic. For some, like Moore, there are big expenses coming due while for others it’s a way to offset the losses and stay afloat until the virus eases its grip.
A report issued by the National Bureau of Economic Research found that 2% of small businesses surveyed had shut down permanently in March, a number that certainly has increased since.
The government’s Paycheck Protection Program helped by giving out more than 5.2 million loans to small businesses and nonprofits. But owners and advocates say struggling companies need more help from Congress.
How many owners have raided savings to shore up their companies during the pandemic is also unclear; in surveys, the number has varied widely from 4% to about 20%.
Alissa Kelly is forgoing most of her salary and has taken nearly $15,000 out of savings to keep her Las Vegas-based publicity firm running. Kelly says she lost almost all her clients in the entertainment and restaurant industries within hours back in March.
Kelly, owner of PR Plus, was forced to lay off two of seven staffers and cut other expenses. A loan from the Paycheck Protection Program helped cover payroll for about two months.
Luckily, Kelly didn’t have to touch her retirement account; she and her husband had put money aside for a rainy day.
Financial advisers recommend owners do some soul-searching before dipping into savings.
“It comes down to trying to be realistic with yourself. It’s looking at not only, are you going to be able to replenish what you’re going to take out, it’s also looking at the missed savings that you would have hopefully captured if we weren’t going through a global pandemic,” says Jennifer Myers, president of Sagevest Wealth Management in McLean, Virginia.
Tom Tunney’s three Ann Sather restaurants are breakfast, brunch and lunch stalwarts in their Chicago neighborhoods. Social distancing requirements have curtailed revenue and the government loan Tunney got was quickly spent paying staff.
Tunney, who’s also an alderman in the Chicago City Council, estimates he’s put $250,000 of his own money into running the restaurants. He dipped into proceeds of real estate sales to replace lost revenue, and says he’s prepared to continue tapping savings until business returns to normal.
“My community and my business are everything, pretty much my family,” Tunney says.