The credit rating agency Equifax is out with a report on small-business bankruptcies nationwide; it’s a good opportunity to take a look at some of the stories behind business insolvencies in your market.
According to the Equifax analysis, 36 percent fewer small businesses filed for protection in the first quarter of 2012 compared to the same period in 2010, with western states faring especially well. Equifax predicts a continued decline; here’s a link to a PDF showing the actual number of filings in metropolitan statistical areas, along with a ranking relative to other communities.
The numbers in most cases are low enough that you could easily track down and tell meaningful stories about most small-businesses bankruptcies in your market, or at least a good cross-section of them. The Equifax report pertains to Q1, but you could do a manual search for second-quarter filings as well, to update the trend. PACER, of course, is helpful for looking up records but talking with court personnel might yield some interesting informal observations.
It would be interesting to focus on small, independently owned companies.
- How did they survive the recession only to need protection in 2012?
- What would they have done differently, in hindsight? Filed sooner? Borrowed less? Borrowed more?
- Are personal finances mingled with business finances, to the detriment of the family’s fiscal health?
- How many workers are/were employed by the firms that are filing, and in what types of jobs at what wages?
- What’s the ratio of liquidation bankruptcies to reorganization attempts?
Fresh-start failures: Another question. How many of the failing businesses represent the fresh-start attempts of people who were out of work due to the 2007 recession, and who took the opportunity to pursue a dream or idea? What are the lessons to be learned from them? Try to illustrate the human stories behind the court dockets.
Follow the trail to the unsecured creditors and talk to them about what they lose by extending credit to small businesses. What patterns are they seeing in terms of companies struggling to make payments, or folding? What’s the ripple effect on the local economy when a firm stops paying its bills to other small businesses?
Here’s a link to a University of California-Davis study that seems to indicate small creditors tend to have less clout in a bankruptcy proceeding than larger creditors, and tend to lose out more. It’s about five years old but good food for thought; check for similar research at your area’s colleges and universities.
For another point of view, here’s a bankruptcy attorney Q&A in the New York Times; the attorney outlines concerns about bankruptcy laws he says disfavor the debtor. (And reading it makes me wonder, are filings down because the climate is better for small biz, or down because they aren’t bothering to file? Talk with some commercial collections agencies about the prevalence of “walk aways” in which companies just stop operating without the formalities.)
Here’s a Small Business Administration portal with a bankruptcy primer to get you started.
