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Small businesses that are essential to communities often suffer the most from inflation — here’s how bitcoin can help remedy this suffering.

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

What are SMEs, small and medium Eenterprises? Small businesses are usually defined as organizations with fewer than 100 employees; midsize enterprises are those organizations with 100 to 999 employees. According to the Small Business Administration(SBA), SMEs employ 47.1% of all private-sector employees.

There is another level of business that is defined by certain states or organizations. A microenterprise employs 10 or fewer people and grosses less than $250,000 annually in some cases and a maximum of $500,000 annually in other cases. That is most businesses.

These businesses are a vital part of your downtown and local community. These businesses include our local pub.,our local retail store your local restaurant, car service shop, home product shop, florist, flooring or lighting store.

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

Numerous people have written about how inflation has a larger and more deleterious effect on those at the lower wage levels. We’ve seen this clearly in the last 20 months.

Inflation will also often have the largest effect on smaller businesses. What’s needed is something that counters the effects of inflation.

These smallest businesses need Bitcoin the most.

Some of the reasons inflation affects these smallest business most:

1. Economies of scale. Larger businesses often benefit from economies of scale – if you buy more, you get discounts. The smallest businesses don’t have this benefit.

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

Increasing prices to offset higher costs can also lead to lost business – often to larger businesses – and thus lead to losses.

2. Wages. With inflation, businesses must raise wages. Because the smallest businesses have issues with scale and costs, it’s more difficult to raise wages. Big companies are able to offer higher wages and pass that increase to a much wider customer base.

This can then harm their ability to attract workers, and thus hurt their ability to be productive and provide service to their customers. There has been and continues to be a war for talent.

3. Susceptibility to downturns. Small and medium businesses can be more susceptible to economic downturns.

A recent Brookings reports states that SMEs were responsible for over 60% of job losses during the 2008 recession. Furthermore, the same or worse is expected due to the effects of COVID-19.

Job loss can be seen as a proxy for lost sales where the business cannot support their previous employment levels.

4. Inability to manage technology changes or supply chain disruptions. In a lockdown of an economy, who is going to have the technology to move online quickly? It’s most likely the larger half of SMEs or large businesses who have the resources and scalability to implement online software.

In a supply chain disruption, who do you think gets the last or late shipment? It’s the smaller and smallest purchasers.

The smallest businesses were even last in line for the COVID-19 relief loans granted to temporarily mitigate the economic slowdown for many businesses.

5. Risk of Failure. There are many different reasons for small business failures. Per a New York Fed paper, loss of business is certainly a large contributor. And, you can’t do business without being able to receive mandatory supplies for your business.

If we can read the tea leaves of past crises and the effect on the smallest of the SME businesses, according to a report from the St Louis Fed:

“In the Great Recession, very small establishments exited at a rate nearly twice as high as the economy average. They also saw a much larger decline in sales if they did survive. But even very small establishments with relatively more sales did not have a lower exit rate.”

The numbers from the last great crisis do not bode well for the smallest establishment amidst the COVID-19 crisis.

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

Could bitcoin as an inflation hedge via the appreciating value of bitcoin help other smaller businesses survive and new ones to start and grow?

Yes, we believe so.

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

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