What Impact Does Cold Weather Have on the Small Business Economy?

Gusto Editors

How much do you enjoy walking outside when the snow is coming down, and you can feel the cold wind blow through your thickest jacket?

Even though some people love the cold, most of us would prefer to bundle up on the couch and hibernate in front of the TV for most of the winter. Cold weather brings snow and freezing temperatures, making things like outdoor dining and waiting in line to get inside your favorite café a challenging prospect. Since winter hibernation is a regular occurrence, it leaves us with the question—does cold weather hurt the small businesses economy?

At Gusto, we want to help you prepare small business clients for anything that comes their way, including lean seasons stemming from inclement weather. Our online show, On the Margins: LIVE, with hosts Caleb Newquist and Will Lopez, addresses questions in the accounting industry that may not have the most obvious answers.

In this episode, we feature our first Gusto correspondent to visit the show, Luke Pardue. Luke is an economist at Gusto who focuses his research on how public policies help small businesses and their workers thrive. One of his most recent articles, Impact Winter: Analyzing Potential Effects of Cold Weather in the Quarantine Economy, received national notoriety and provided invaluable insights into how winter affects small businesses.

Join us as we take a look at how freezing temperatures impact the retail trade—especially in the leisure and hospitality sectors.

Freezing temperatures affect more than cold-weather cities

It goes without saying that winter can pose difficulties for areas that experience extremely harsh winter weather like New England and the Midwest. However, these are not the only places that struggle when the thermometer starts to dip. Luke Pardue’s research shows that the area affected by winter stretches far beyond the usual “cold-weather” cities.

“We wanted to do this analysis to really sound the alarm at the risk that cold weather poses [on businesses]. One surprising thing is the breadth of this risk. It is not limited to traditionally cold-weather areas like New England or Chicago. But [the threat of winter] extends far deep into the South, the Midwest, and the Pacific Northwest.”

– Luke Pardue
Snow covered park in Chicago with skyline.

Trends to maintain social distancing by encouraging outdoor dining and limiting indoor capacity have boosted small businesses in areas where the seasons change. Yet, once cold weather works its way back into the picture, it brings potential adverse economic effects with it.

“What we found is that … winter poses a really large threat in cold cities. … Businesses have relied on social distancing, and outdoor dining is a particularly conspicuous adjustment that these businesses have made. A lot of those adjustments are not feasible when the weather is colder.”

– Luke Pardue

Cold weather creates a need for businesses to adjust how they cater to customers, particularly in the hospitality and leisure industries. Restaurants, coffee shops, and other companies that rely on outdoor dining and retail space feel the most pressure in winter weather. Without a solid plan to make patrons comfortable during winter, small businesses can see significant losses in both revenue and employee retention. 

Uncertainty surrounding winter increases small business risks

During most seasons, unexpected weather conditions may cause mild inconveniences like wearing a raincoat or putting on a tank top instead of a t-shirt, but winter poses more challenging obstacles. Potentially unsafe weather conditions such as icy roads or even hypothermia risks brought on by colder weather make it difficult for small businesses to determine how winter will affect them. According to Luke, this unpredictability is one of the greatest threats to SMB owners during colder months.

“When the weather turns cold, it’s not clear if [customers] are going to brave the cold weather when they could sit inside and order something online. … There’s so much uncertainty surrounding winter in terms of weather. … From a business perspective, uncertainty is never a good thing. Business owners always want to know what’s going to happen so they can plan and make investments.”

– Luke Pardue

For many small business owners, winter brings many challenging questions like, “Should I take the risk to keep my company open and hope the winter is mild?” and “Would it be better to close for the winter altogether?” Unfortunately, there are no definitive answers for small business owners. In many cases, the best thing SMBs can do in uncertain times is to weigh the risk and determine if remaining open is worth it or if they should join in during winter hibernation.

“Maybe we’ll have a warm Saturday, and people will go out to shop or dine, but that’s not something restaurants or [retailers] can depend on. That’s why we sometimes see businesses shutter for the winter and hibernate because that one Saturday is not going to be what puts them over the top or in the black.”

– Luke Pardue

When small businesses close during the colder months, the rest of the economy feels the effects. Closed doors mean increased seasonal layoffs, resulting in a higher unemployment rate and lower spending at open businesses. These adverse side effects of wintertime push small business owners and employees to find new ways to pivot to avoid overwhelming financial challenges.

Seasonal changes create shifts in the small business economy

People walking on snow covered city street.

Even though traditional small businesses feel the yearly pressure from colder months, it also opens possibilities for expansion in unique areas. Many talented individuals who typically work at small companies have branched out toward various side hustles. In fact, as more businesses close down due to slow business over winter, an increase in entrepreneurship occurs.

“One encouraging bright spot that I’ve seen is, economy-wide, an actual surge in business applications, which means that entrepreneurs are seeing pain, but they’re also seeing an opportunity to adapt. When their backs are against the wall, they are able to shift a business model or start a new business that meets a new need.”

– Luke Pardue

Online education is one area where significant entrepreneurial growth occurs during decreased winter employment. Many furloughed skilled workers find new ways to utilize their talents to earn money by offering courses for people who want to learn more about their profession. Online platforms such as Skillshare give talented individuals a way to make money by sharing their knowledge with people eager to learn new skills.

“There’s anecdotal evidence that people [are branching out during winter months]. One customer, who is a bakery shop owner, has transitioned to cooking classes while their shop is closed. They’ve started a side business and hired people with technical skills relating to streaming cooking classes. And there are other people who might’ve had a side gig that they can turn into a full business model.”

– Luke Pardue

Humans always rise to the occasion to find new and inventive ways to earn money during challenging times. Whether they turn their side gig into a business that they can run out of their homes or start teaching online classes, people find ways to make the most out of situations. For many, the loss of a position due to slow business at their former job gives them the push they need to branch out and create new possibilities for themselves.

Learn more about how winter weather affects the small business economy

Your small business clients, especially those in retail and leisure & hospitality, have a difficult decision to make every winter. Do they close their doors and enter winter hibernation, or do they brave the cold in hopes that winter is mild enough to make enough to keep the lights on? Both choices come with significant challenges for small business owners and their teams, resulting in possible employee turnover or permanent closure.

“A really surprising fact is that small business makes up over half of the employment within the retail and leisure & hospitality industries. These are the bread and butter businesses when you walk down Main Street, and to see them struggling is very painful.”

– Luke Pardue

Providing the proper guidance can help your small business clients make choices that yield the best current and future results, and being a People Advisor places you in the best position to support your clients through difficult times. Your financial expertise as a CPA coupled with Gusto’s people-centered tools will help you provide the guidance your clients need to brave any weather.

If you would like to learn more about the challenges small businesses face, be sure to check out the entire On the Margins: LIVE episode here. Also, if you enjoyed this article and want more like it, be on the lookout for the next article in this series, Side Hustling as an Accountant: Tips from a Pro. There, we will unpack the ins and outs of what it means to run a successful side hustle and how you can make a little extra cash as a CPA.

Our mission at Gusto is to create a world where accountants can successfully help their clients navigate the coldest winters. Be sure to look into our People Advisory Program to learn how to train your team to help clients reach their potential. We also provide a partner blog full of resources for all your advising needs. Visit our Gusto for Accountants page for more information on utilizing people-based accounting within your firm.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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