Small firms die quietly, leave too many failures uncounted
Big companies are going bankrupt at a record pace, but that’s only part of the carnage. By some accounts, small businesses are disappearing by the thousands amid the COVID-19 pandemic, and the drag on the economy from these failures could be huge.
This wave of silent failures goes uncounted in part because real-time data on small business is notoriously scarce, and because owners of small firms often have no debt, and thus no need for bankruptcy court.
“Probably all you need to do is call the utilities and tell them to turn them off and close your door,” said William Dunkelberg, who runs a monthly survey as chief economist for the National Federation of Independent Business.
Nevertheless, closures “are going to be well above normal because we’re in a disastrous economic situation,” Dunkelberg said.
Yelp Inc., the online reviewer, has data showing more than 80,000 permanently shuttered from March 1 to July 25. About 60,000 were local businesses, or firms with fewer than five locations.
About 800 small businesses did indeed file for Chapter 11 bankruptcy from mid-February to July 31, according to the American Bankruptcy Institute, and the trade group expects the 2020 total could be up 36% from last year.
While the busineses are small individually, the collective impact of their failures could be substantial.
Firms with fewer than 500 employees account for about 44% of U.S. economic activity, according to a U.S. Small Business Administration report, and they employ almost half of all American workers.
Justine Bacon permanently shut her Yoga Brain studio in Philadelphia after deciding it was too dangerous to hold indoor classes because of the pandemic. Bacon didn’t file for bankruptcy, she just simply closed up shop and went out of business on June 30.
“I felt it better to close with some money in the account and not have to worry about bankrupting the business,” said Bacon, 35.
While large companies are seeking court protection at a record pace, countless small businesses like
that year. Over the years, more buildings and property were added to the Sentinel’s downtown campus, which grew to more than two blocks between Orange and Magnolia Avenues.
In 2017, the newspaper closed its printing press operation and outsourced printing to a Gannett plant in Lakeland. In addition to the downtown printing plant, other buildings at the Sentinel’s campus have gone vacant except for the main building.
Other Tribune Publishing newspapers, including the South Florida Sun Sentinel, announced Wednesday
Yoga Brain aren’t included in the official toll.
Small business attrition is high even in normal times. Only about half of all establishments survive for at least five years, according to the SBA.
But the swiftness of the pandemic and the huge drop in economic activity is hitting hard among typically upbeat entrepreneurs. About 58% of small business owners say they’re worried about permanently closing, according to a July U.S. Chamber of Commerce survey.
Jose Gamiz, 45, and Leticia Gamiz, 52, closed their restaurant in Glendale, Arizona, on July 31. The bills started piling up, and while thousands in government loans helped, they weren’t taking in enough cash. They had four part-time employees.
It was too much of a gamble to keep Mi Vegana Madre open, Jose Gamiz said. The couple knew the dangers of taking risks after they lost the first house they bought during the 2008 crisis.
“We wanted to take that as a lesson,” Jose Gamiz said. “Sometimes it’s OK to let it go and not expend every penny.”
they will not return to their buildings until 2021. Three other company newspapers, the New York Daily News, the Allentown Morning Call in Pennsylvania and the Capital Gazette in Annapolis, Md., will join the Sentinel in permanently leaving their current office space.
Another Florida newspaper, The Miami Herald, announced in early June that it was moving out of its Doral newsroom and would operate remotely for the rest of 2020.