August 10, 2022

Why Small Businesses Need Bitcoin

The Cantillon effect describes the phenomena that benefit most those close to the printing press. Big institutions, banks, organizations and corporations are closer to money. Large groups representing large amounts of coordinated interests are also closer to money.

What are SMEs, small and medium-sized enterprises? Small businesses are generally defined as organizations with less than 100 employees; medium-sized companies are organizations with 100 to 999 employees. According to Small Business Administration (SBA), SMEs employ 47.1% of all private sector employees.

There is another level of activity that is defined by certain states or organizations. A micro-enterprise employs 10 or fewer people and earns less than $250,000 per year in some cases and a maximum of $500,000 per year in other cases. That’s most companies.

These businesses are an essential part of your downtown and local community. These businesses include our local pub, local retail store, your local restaurant, auto service store, home goods store, florist, flooring or lighting store.

However, whether it is its number of employees or its annual revenue, what makes or breaks a business is the difference between revenue and expenses. Too much red ink and the business dies. The goal is to have more income than expenses. The largest portion of expenses tends to be made up of capital equipment, inventory costs, and salaries.

Many people have written about how inflation has a greater and more deleterious effect on people at lower salary levels. We have seen this clearly over the past 20 months.

Inflation will also often have the greatest effect on small businesses. What is needed is something that counteracts the effects of inflation.

These smaller businesses need Bitcoin the most.

Some of the reasons why inflation affects these small businesses the most:

1. Economies of scale. Large companies often benefit from economies of scale – if you buy more, you get discounts. Smaller companies do not have this advantage.

This means that the smallest businesses are the hardest hit by inflation and must either raise their prices or possibly lose money as a result.

Raising prices to offset higher costs can also lead to lost business – often for large companies – and therefore losses.

2. Wages. With inflation, companies have to raise wages. Because smaller companies have scale and cost issues, it’s harder to raise wages. Larger companies are able to offer higher salaries and pass this increase on to a much larger customer base.

This can then hurt their ability to attract workers, and therefore hurt their ability to be productive and provide services to their customers. There was and still is a talent war.

3. Sensitivity to slowdowns. Small and medium-sized businesses may be more sensitive to economic downturns.

A recent reports from Brookings indicates that SMEs were responsible for more than 60% of job losses during the 2008 recession. Further, the same or worse is expected due to the effects of COVID-19 .

Job loss can be thought of as a proxy for lost sales when the business cannot sustain its previous employment levels.

4. Inability to manage technological changes or supply chain disruptions. In a stalled economy, who will have the technology to connect quickly? This is most likely the larger half of SMBs or large enterprises that have the resources and scalability to implement online software.

In the event of a supply chain disruption, who do you think gets the last shipment or the late delivery? These are the smaller and smaller buyers.

Smaller businesses were even the last in line for COVID-19 relief loans issued to temporarily ease the economic downturn for many businesses.

5. Risk of failure. There are many different reasons for small business failures. According to an article by the New York Fed, loss of business is definitely a big contributor. And, you cannot do business without being able to receive the supplies required for your business.

If we can read the tea leaves of past crises and the effect on the smallest of SMEs, according to a st louis fed report:

“During the Great Recession, very small establishments closed at nearly twice the rate of the average for the economy. They also saw a much larger drop in sales if they survived. But even very small establishments with relatively more sales did not have a lower exit rate.

The numbers from the last big crisis don’t bode well for the smaller establishment amid the COVID-19 crisis.

The smallest businesses are part of the individualistic and sovereign heart of any community, and we have seen far too many sink in this pandemic. And, as mentioned above, with so many Americans employed by these types of businesses, it is imperative that they remain viable for the security of our economy and the vitality of our communities.

Could bitcoin as a hedge against inflation via bitcoin’s appreciation in value help other small businesses survive and new ones start and grow?

Yes, we believe it.

This is a guest post by Mark Maraia, Heidi Porter and Colin Crossman. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.