What's Working: Rise in business closures

Year-over-year dip in new filings seen in second quarter

Tamara Chuang
The Colorado Sun
Posted 8/23/22

The Colorado Secretary of State’s office last week shared the latest quarterly update on how small businesses in the state are doing. It’s mixed, Secretary of State Jena Griswold said. Job growth …

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What's Working: Rise in business closures

Year-over-year dip in new filings seen in second quarter

Posted

The Colorado Secretary of State’s office last week shared the latest quarterly update on how small businesses in the state are doing. It’s mixed, Secretary of State Jena Griswold said. Job growth remains strong, but the number of businesses that are delinquent in filing regular reports or repaying a debt rose.

“And while many new entities are filing with our office, the report also notes an uptick in delinquencies and dissolutions as well as signs of pessimism from the business community due to inflation, supply-chain disruption, worker shortages and interest rates among other factors that continued to place pressure on small business owners,” Griswold said during a news conference.

According to data provided by the Leeds School of Business at University of Colorado, the number of new business filings was slightly negative from a year ago, at -0.2% in the second quarter, which was the first annual decline since the start of the pandemic.

And the number of companies showing signs of failure grew at double-digit rates — delinquent filings were up 9.8% while companies that dissolved their business grew 27%.

Brian Lewandowski, executive director of Leeds’ Business Research Division, speculated that more businesses would have dissolved earlier if it hadn’t been for federal stimulus packages that provided financial aid to small businesses, like the popular Paycheck Protection Programs.

“Perhaps the rise in dissolutions and delinquencies are a sign of some of that strain on businesses now that the stimulus has gone away,” he said. “With a slowing national economy, can we expect to see the rise in business failures over the coming quarters?”

His colleague Richard Wobbekind thinks so. Even though bankruptcy filings fell in the pandemic, recent data lags.

“I think there’s a fair amount of concern that we’re going to see bankruptcy and those kinds of things uptick over the next two quarters,” Wobbekind said. “Some of the funding that was out there has run out. We’re hearing this from the banking community and elsewhere.”

The nation’s gross domestic product slowed in the first half of the year, which can indicate an economy in recession. Nevertheless, strong job numbers and a growth in the number of businesses in good standing are evidence that Colorado’s economy is holding steady.

“Our view is that this is not, we’re not in a recession,” Wobbekind said. “Despite the slowdown in the first half, expectations are that the 2022 overall GDP will be positive. Right now, the forward-looking forecast for the third quarter is running at about one-and-half percent for GDP growth. But this is still obviously a much more moderate growth economy than we had in 2021.”

Speaking of business filings, Colorado’s Business Fee Relief Act went into effect July 1. That dropped the cost of registering a new business from $50 to $1. In the first month, the state attracted 13,000 new business registrations and 4,200 trade names, which the Secretary of State’s office estimated a $750,000 savings for small business owners.

This story is from The Colorado Sun, a journalist-owned news outlet based in Denver and covering the state. For more, and to support The Colorado Sun, visit coloradosun.com. The Colorado Sun is a partner in the Colorado News Conservancy, owner of Colorado Community Media.

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