This piece covers how small businesses face a cash crunch during COVID-19: revenue drops 80-100%, and even debt-free firms can only survive 4-6 months. Brent Beshore argues restarting a shuttered business is harder than keeping it running (staff leave, customers vanish, supply chains break). He urges direct government wage subsidies, not tax credits (firms have no tax to offset). His own fund has near-zero debt, so it's relatively safe; highly-leveraged private equity may have to abandon some portfolio companies. No specific stocks mentioned, but he warns against predatory deals that ruin long-term relationships.
Brent Beshore discussed the impact of COVID-19 on small businesses and private equity on the Invest Like the Best podcast. The core argument is that small businesses face a survival crisis due to cash flow freezes, with most able to sustain only weeks to months. He proposes policy recommendations in
Brent Beshore is the founder of the private equity fund Permanent Equity, which focuses on acquiring and operating small and medium-sized enterprises. In this issue, as a front-line investor and operator of small businesses, Brent Beshore assessed during the early stages of the nationwide economic shutdown caused by COVID-19 (March 19, 2020) that the vast majority of small businesses cannot withstand an 80-100% decline in revenue; even without debt, they can only survive for 4-6 months at most. Moreover, the cost and difficulty of restarting a completely shut-down business may far exceed those of keeping it running.
Brent Beshore argues that the finances of small businesses are highly intertwined with the personal finances of their owners, and a sharp drop in revenue will quickly deplete both the owner's personal savings and the company's cash reserves.
Beshore points out that most small business owners are not as "financially well-off" as outsiders imagine — they hold equity in their businesses (which has already significantly depreciated at this point), rather than large amounts of cash. "I had a friend in real estate ask me: Doesn't everyone have two years of cash saved up and their mortgage paid off?... But the reality is, most successful entrepreneurs derive their income and living standards from their businesses, but they don't have much traditional wealth (aside from business equity)." (In other words: business owners may appear to have decent income, but their personal and business capital pools are the same; a business loss directly equals a personal loss.)
He provides a specific survival timeline: assuming no debt (which is extremely rare in the restaurant industry), a business can last at most 4-6 months; those with debt have even less time. In reality, among the 30-40 businesses he has spoken with, "everyone is in the same boat — revenue has either already plummeted or is about to plummet. No company can withstand an 80-100% decline in revenue, even if only for the short term."
Key Data Chain:
Brent Beshore proposes a counterintuitive judgment: the cost and difficulty of fully shutting down a business and then restarting it may far exceed maintaining it at minimal operations, and the act of "mothballing a business" has virtually no historical precedent.
Beshore compares the current situation to "a distillery during Prohibition" — the closest reference available. He breaks down the three major obstacles to restarting:
1. Loss of personnel: After a six-month shutdown, employees will not wait around. They will find new jobs, relocate, or care for sick family members. "You can't get all your employees back."
2. Changes in customer demand: Even if the business reopens, customers will not return like flipping a switch. The sales process needs to be restarted, and it may take six months to regain orders. "And I'm not sure demand in some industries will ever return to previous levels."
3. Supply chain disruption: If suppliers go under during the shutdown, even if your business survives, you may be unable to resume production due to a lack of raw materials or services.
He admits: "As far as I know, no one has ever done this. If anyone has a playbook, please email me — we're figuring it out as we go."
Beshore's falsification condition: If the government can quickly provide direct financial support of sufficient scale (rather than delayed tools like tax credits), the likelihood of businesses maintaining operations will increase significantly, and the need for mothballing will decrease.
Brent Beshore proposes four specific policy recommendations, with the core logic being: since the government caused the mandatory shutdown, it should bear a portion of businesses' fixed costs, rather than using delayed-effect tools like tax credits.
| Policy Recommendation | Specific Content | Design Logic |
|---|---|---|
| Government Wage Sharing | The government pays 80% of small business wages (capped at $100,000 annual salary) for 3 months | Businesses still bear 20% of costs, incentivizing them to retain only essential personnel; eligibility window set for employees on payroll as of March 1 and returning by April 15 |
| Suspension of Payroll Tax | Suspend payroll tax on income below $100,000 annually | Directly increases disposable cash for business owners and employees |
| Small Business Bonds | Tenor of 10+ years, principal and interest waived for the first year, interest rate ≤ 3%, personal guarantee, capped at $5 million | Long-term amortization prevents debt burden from dragging down post-recovery growth; owners bear partial losses (not letting everyone walk away unscathed) |
| Relaxed Bank Lending Authority | Suspend bank regulatory standards for 2 years, allowing temporary loans based on inventory and accounts receivable | Bypasses the SBA's 60-90 day approval cycle; introduces fintech companies like Square as lending channels |
Beshore specifically criticized the FMLA (Paid Leave) expansion bill already passed at the time: "They compensate businesses through tax credits—but no business owner cares about taxes right now because there are no taxes to pay. This actually makes the short-term cash drain worse for businesses." (Meaning: the policy intent is good, but the tool is wrong, adding insult to injury for businesses.)
He estimates that if the policy were simple and straightforward (5 options with clear guidance), the adoption rate could exceed 90%.
Brent Beshore believes that highly leveraged private equity funds will face a massive shakeout — many funds must decide "which companies to save and which to abandon," while low-leverage funds (like his own) are in the best position on a relative basis.
Beshore revealed that six weeks ago, peers were still accusing him of being "irresponsible for not using leverage." Today, his fund carries nearly zero debt (the five companies acquired by the first fund have no senior debt at all). "If these businesses can't survive, I don't know who can."
He explained the fatal mechanics of leverage: Assume EBITDA was 100 in 2019, and 2x leverage means 200 in debt. If EBITDA falls to 50 in 2020, the leverage ratio becomes 4x — and 2x is "just child's play" in the private equity industry. He believes: "Many private equity firms are now doing the math — which portfolio companies are worth saving and which are not. This will trigger a wave of massive shakeouts and layoffs."
Beshore's self-positioning: "In absolute terms, we are struggling too; but in relative terms, we are in the best position you can imagine — good clients, a strong balance sheet, no debt, a solid leadership team. Yet even so, it still feels terrible."
Brent Beshore believes the current environment presents significant investment opportunities, but entering through "vulture-like" tactics would destroy long-term relationships. He is exploring "balance sheet products" as an alternative, though he acknowledges this is not his core business.
Beshore describes the dilemma: his core business involves acquiring majority stakes in companies, but "nobody wants to sell equity to retire right now." At the same time, he is reluctant to engage in high-yield junk bond-style lending. The option he is considering is providing short-term debt (loans secured by accounts receivable or inventory) with a "debt-to-equity" option — if the company ultimately cannot repay, the loan can convert into a majority stake, with the original owner retaining around 20%. "They are still better off than having nothing, and many people's jobs can be saved."
He emphasizes: "We don't want to start a relationship when someone is at their most vulnerable and then expect to get along well later. Resentment is inevitable." (In other words, opportunistic transactions undermine trust and are a negative-sum game in the long run.)
Key distinction: Beshore defines "balance sheet products" as short-term loans secured by corporate assets (accounts receivable, inventory), rather than equity purchases. This differs from potential government-provided interest-free loans — privately offered products of this kind carry higher interest rates but may not require personal guarantees.
Brent Beshore and Patrick O'Shaughnessy agree that, during a crisis, proactively increasing communication with others is the only thing that can "make the numbers go up."
Beshore admits to experiencing an emotional curve from "curiosity" to "caution" to "panic," even considering "just getting infected first to gain immunity, then helping others deliver groceries." But he ultimately realized: "Physical isolation is right, but social isolation is wrong — we should over-communicate and over-engage socially."
Patrick added an actionable approach: "When everything around you is going down, you have to find something you can make go up. For me, that's the number of conversations with people I care about — with the team, with friends. Make that number go up."
This section contains no investable targets with substantive discussion. Beshore discusses small businesses in his portfolio (unnamed) and references the restaurant industry (such as his friend's restaurant Bard Owl in Columbia), but does not provide specific company names or investable securities.
1. "No business can withstand an 80-100% drop in revenue, even for a short period." — Brent Beshore. Support: Phone feedback from 30-40 companies, and the estimate that "debt-free businesses can last at most 4-6 months."
2. "The cost of restarting is higher than maintaining—mothballing a business has never been done before." — Brent Beshore. Support: Three major obstacles—personnel loss, changes in customer demand, and supply chain disruptions; analogy to "distilleries during Prohibition."
3. "Tax credits are the wrong tool—companies have no taxes to pay right now." — Brent Beshore. Support: The FMLA bill that was passed compensates companies for paid leave through tax credits, but short-term cash flows are already depleted, making the credits unclaimable.
4. "2x leverage is child's play in private equity—but after EBITDA collapses, leverage ratios will spike to lethal levels." — Brent Beshore. Support: Assume 2019 EBITDA = 100, debt = 200 (2x leverage); if 2020 EBITDA drops to 50, the leverage ratio becomes 4x.
5. "There is only a fine line between a loan shark and a white knight—opportunistic deals destroy long-term relationships." — Brent Beshore. Support: Currently exploring "debt-to-equity" solutions (loan → if unable to repay, converts to 80% equity, with original owner retaining 20%), but acknowledges this is not his core business.
6. "Physically isolate, but socially over-communicate." — Brent Beshore. Support: Patrick's methodology of "increasing the number of conversations," and Beshore's admission that "I tend to retreat into my shell, but that might be the wrong approach."
7. "Small business bond" framework: 10+ year term, no principal or interest in the first year, interest rate ≤ 3%, personal guarantee, cap of $5 million. — Brent Beshore. Support: Long-term amortization prevents debt from hindering restart growth; owners bear some losses (not letting everyone walk away unscathed).
8. "The government caused the forced shutdown, so it should bear part of the fixed costs of businesses." — Brent Beshore. Support: Core logic behind four policy recommendations—government co-pays 80% of wages, suspends payroll taxes, issues small business bonds, and relaxes bank lending authority.