Small-business bankruptcies rise 81% in California

With credit tight and consumers still pinching their pennies, many business owners find they can't go on.

By Nathan Olivarez-Giles

December 22, 2009

The Obama administration's new plan to give a boost to small businesses reflects continued trouble in that sector, which is facing new failures even as much of the nation's economy is stabilizing.

As credit lines have shrunk and consumers have cut back on spending, thousands of small businesses have closed their doors over the last year. The plight of struggling firms has been aggravated by the reluctance of banks to lend money, said Brian Headd, an economist at the Small Business Administration's office of advocacy.

"While bankruptcies are up, overall, small-business closures are up even more," Headd said.

California has been particularly hard hit. The latest data show small-business bankruptcies up 81% in the state for the 12 months ended Sept. 30, compared with the previous year. Filings nationwide were up 44%, according to the credit analysis firm Equifax Inc.

The actual number of small businesses in trouble is probably higher, experts said, because many owners file for personal bankruptcy rather than seek protection for the business.

Dennis McGoldrick, a bankruptcy lawyer in Torrance, said his clients are all stuck in similar situations -- capital is hard to come by, customers are tough to attract and debt is piling up."We can't keep up," McGoldrick said. "There's more people that want to come in every day than I can see."

Cecily McAlpine, who filed for bankruptcy protection for her Cold Stone Creamery franchise this spring, said the experience was humiliating but she had no choice. Receipts at the fledgling Compton ice cream shop plunged dramatically during the recession, and by late 2008 she was paying her employees out of her pocket.

"When the refrigerator died, that was it; I'd just had it," McAlpine said. "That was the day I broke. I just started throwing stuff away."

McAlpine recently withdrew her bankruptcy filing after selling all the store equipment and paying off her creditors. She is slowly paying off some back-rent and utility debt, and will officially dissolve her business in the next couple of weeks, she said.

"I still feel scarred and like a loser," she said. "Even though I'm not in it anymore, it's still there."

Recognizing the problems of business owners like McAlpine, the Obama administration has proposed using federal stimulus money to help funnel more loans to small businesses. The White House has also asked Congress to eliminate capital gains taxes for one year on new investments in small-business stock, and called for a new tax incentive to encourage small businesses to hire more employees.

On Dec. 14, Obama called a meeting of executives of Wells Fargo & Co., Citigroup Inc., Bank of America Corp. and nine other large banks, and told them that they owed it to the nation to make more loans to small businesses and help rebuild the economy.

In California, the need is great. Over the last year, the Los Angeles, Riverside/San Bernardino and Sacramento metropolitan areas have led the nation in small-business bankruptcy filings, said Tim Klein, a spokesman for Equifax.

About 19,000 small businesses filed for bankruptcy in California during the 12 months ended Sept. 2009, up from 10,500 the previous year.During September alone, 2,229 small businesses filed for protection, up from 1,503 filings in September 2008, the firm reported.

Kathleen March, a bankruptcy lawyer in Los Angeles, said she often pushes her clients to file for personal bankruptcy instead of a business filing because it's easier.
Many people also close down their businesses thinking that will solve their problems, only to find their companies' debt lives on, March said.

CEO's rate California 'Worst State To Conduct Business' for 4th Consecutive Year

CEOs Select Best, Worst States for Job Growth and Business

chiefexecutive.net:

Texas, North Carolina, Florida Top List as Best States; California, New York, Michigan Are the Worst

As the nation’s unemployment figures continue to reach new heights, Chief Executive magazine's 2009 "Best & Worst States" survey took CEO's pulse on what the best and worst places for jobs and business growth are. For the fourth year in a row, CEOs rated Texas as the #1 state to do business and California as the worst.

Chief Executive's fifth annual survey asked 543 CEOs to evaluate their states on a broad range of issues, including proximity to resources, regulation, tax policies, education, quality of living and infrastructure. Providing additional insight to the evaluations, CEOs were also asked to grade each state based on the following criteria: 1) Taxation & Regulation, 2) Workforce Quality, and 3) Living Environment.

"Our survey, year-over-year proves that those states with the worst records continue to practice the same policies that alienate businesses," said JP Donlon, Editor-in-Chief of Chief Executive magazine. "As the nation’s economic problems continue to snowball and an increasing number of states experience budgetary problems, state governments ought to take a hard look at their taxation and unionization policies if they want to turn the page and attract new businesses and capital to their provinces."

Once again, this year, the same states that took the bottom five spots over the past few years preserved their rankings for the most part. For the fourth year in a row, California and New York were ranked the worst and second worst state to do business in, respectively. Michigan was ranked third from the bottom for the second year in a row. The only difference in the bottom five was a flip in the worst fourth and fifth states, as New Jersey took over Massachusetts as the fourth worst state.

Plaguing business growth and opportunities in these states are high business taxes exposed on business owners as well as a strongly unionized labor force. Coincidentally, all the bottom three states, California, New York and Michigan, also support some of the nation’s highest unemployment rates - 10.1 percent, 7.6 percent and 11.6 percent, respectively, as of January (most recent data available). This compares to a national average of 7.6 percent in the same month (national unemployment rate reached 8.1 percent in February).

Expressing the prevalent attitude among CEOs, one CEO said, "Michigan and California literally need to do a 180 if they are ever to become competitive again. California has huge advantages with its size, quality of work force, particularly in high tech, as well as the quality of life and climate advantages of the state. However, it is an absolute regulatory and tax disaster, as is Michigan."

As states put on an intense competition to attract business and investment in this tough economic environment, Chief Executive magazine's Best & Worst States survey experienced a flurry of activity in the top ranks with the entry of three new states into the top five: Florida, Georgia and Tennessee.

Texas maintained its #1 spot in the ranking for the fourth year in a row, as North Carolina, Florida, Georgia and Tennessee all jumped up in ranks, taking the #2, 3, 4 and 5 spots, respectively.

"Texas and the Carolinas are great for business," said one CEO. "South Carolina's Research Authority is exemplary in terms of creating new economic growth and Texas is strategically centered, has low taxes, and outstanding demographics."

As a testament to this statement, in contrast to much of the nation, in fiscal 2008, Texas' gross state product grew by 4.2 percent, compared to 1.9 percent for the national economy.