Americans are slowly coming out of the COVID-19 crisis and testing the waters — and the effectiveness of the vaccines — by visiting stores and restaurants, going back to movie theaters and offices and even planning overdue vacations. And due to a long year of social distancing and staying close to home, there are many businesses that people want to revisit or even patronize for the first time.
Generous unemployment checks and government funding have helped keep people and businesses afloat. In fact, the saving rate for most Americans increased during the pandemic to as much as 33 percent in January 2020. By January 2021, the saving rate was 19.8 percent. But when compared against an average savings rate of 7 percent from 2015 to the end of 2019, it’s clear that Americans managed to save more during the pandemic. And now that we are getting to see the light at the end of the tunnel, people are ready to spend some money.
According to recent business formation statistics data from the U.S. Census Bureau, there were 500,219 applications for an Employer ID Number (EIN) in May 2021. According to Census data, this number represents an increase of 1.2 percent from the previous month of April. Each region of the U.S. saw an increase, with the exception of the Midwest.
Here are five reasons why it’s no surprise that Employer Identification Number (EIN) applications are surging, and why it may be a good time to start a business.
1. People Decide to Start a Business After Losing a Job
COVID-19 and the massive shutdowns to the U.S. economy caused millions of people to lose their jobs. Some of those jobs won’t be coming back. When presented with the uncertainty of unemployment, some people used it as an opportunity to start their own business and chart their own path in life.
Starting a business after losing a job can be a moment of clarity in your career. If there’s a business idea you’ve been thinking about but never had time to pursue, or if there are other ways that you’d like to use your professional skills, now might be an ideal time to start.
2. Investors Are Waiting on the Sidelines
During the pandemic, many investors may have held back from opening or supporting a new business. The uncertainty of COVID-19 had many people pulling out of starting a business and may have persuaded others to sit on their hands. Now that we are making our way out of the long COVID year, investors, entrepreneurs and small business owners are itching to get back to business. As the saying goes, “The early bird gets the worm.” By acting fast, many new small businesses will benefit by plunging back into business, especially since older, established businesses were forced to close down. Some of the shutdowns may even have been permanent, opening up opportunities for new businesses.
Funding for new businesses has become more available, either as a result of the pandemic or the desire for people to put their money to work. There are a number of government programs (including grants and loans), in addition to support from angel investors, business incubators and crowdfunding options.
3. Working from Home Is the New Normal
Since the pandemic, many people have set up a home office. And after over a year of working at home, many are not yet ready to go back to the office, preferring to continue working remotely. For new business owners, this accepted reality means that they are no longer required to set up a business office and carry the expense of rent, insurance, maintenance and all the associated overhead costs. In fact, the pandemic has seen a steep rise in home-based businesses. For many new entrepreneurs, the new office may be the living room couch or kitchen table.
4. Some Small Businesses Have Closed, But Others Are Opening
Along with millions of lost jobs, the COVID-19 recession has caused thousands of small businesses to close. This is not “good news” by any means; when small businesses fail, it sometimes means the end of someone’s dream or a sad conclusion to countless hours of hard work.
But sometimes, there are silver linings in business closures as well. Sometimes, small businesses close because the owners decide to sell their business to new owners. Sometimes when a business closes in a neighborhood, a new business opens in its place. Sometimes a new generation of entrepreneurs can see opportunity in a location or industry that was struggling. Sometimes even the toughest economic times can be fertile ground for green shoots of new innovation and future growth.
The post-pandemic world is the best time to make a mark as a business owner. Build on your product or service and start working on your branding. Having a strong brand and brand awareness will attract customers and help build a base.
5. People Want to Create Their Own Job Security
The COVID-19 recession is the second major recession and the second major mass unemployment event since the 2008 financial crisis. Many young professionals and mid-career employees who are currently in their 30s or early 40s have now witnessed two major economic crises during their careers.
Some of these people might have gotten laid off from multiple jobs or experienced other serious setbacks during what they had hoped would be a steady path of progress in their corporate careers. Starting their own business can be a way to put themselves in the driver's seat of their own financial future and ensure they have work for years to come.
Recessions Can Be a Good Time to Start a Business
Along with people’s immediate employment status and other personal reasons for getting into entrepreneurship, a recession can be a good time to start a business if you look at the broader economic conditions. Fox Business News has a list of some prominent companies that were started during the 2008 Great Recession. These now-famous businesses include Slack, Pinterest, Uber, Square, Venmo and Instagram.
Why is a recession such a good time to start a business? A few reasons:
People are looking for new ideas and new solutions to problems. Recessions and crises force people to innovate. COVID-19 is the biggest crisis and the biggest problem the world has seen since World War II. And as described in this Collaborative Fund blog post, World War II was the most important event of the past 100 years, which spurred innovations that are still shaping our world today. There might be new businesses that get started in 2021 that help solve problems related to personal care, medical testing, online education or other fields that we haven’t even discovered yet.
There’s less competition and “froth” in the market. Sometimes during good economic times, it can paradoxically be too hard for good businesses to get noticed and find their market. During a recession, the playing field is less crowded. There’s less noise. People are still looking for good ideas and investors are still willing to invest during a recession, but sometimes a quieter economy can actually be a good thing for entrepreneurs.
It’s easier to hire talented employees. Before COVID-19, the labor market in the U.S. was pretty tight. Low unemployment is often good news for workers, and it doesn’t mean that employers should lowball people with their job offers; talent isn’t necessarily “cheap” today compared to a year ago. But during a recession, a lot of top talent might be more open to the idea of going to work for your business. It might be a bit easier to hire people away from their current jobs. There might be a few more great people in the market for a new job who were not looking a year ago. And with remote work at an all-time high, you now have access to great candidates located all over the country and world who can work with you via the internet. All of this can be good for your business if you are ready to hire employees.
COVID-19 has been a stressful, sad time for everyone. Along with the lost human lives and health problems from the virus, there has been massive harm to the economy and to many people’s livelihoods. But if there is one hopeful sign that we can learn from previous crises, it is this: human beings are resilient and adaptable. People always find a way to bounce back from crises and downturns. People find new ways to cooperate and solve problems.
No matter where you might be in your career or overall financial situation as a result of the COVID-19 crisis, Incfile can help you start a business and figure out how to make a living as your own boss. We are passionate about helping small businesses get started with official business filings and with helpful information and guidance.
Peter Mavrikis is an author and editor with over 25 years of experience in publishing. He has worked as the Editorial Director for Barron’s Educational Series, as well as Kaplan Test Prep, where he ran the test prep, foreign language, and study guide divisions. Peter has also written several books on history, exploration, science, and technology.