In 1993, Fewer Businesses May Go Belly Up

At first glance, there's precious little to crow about in Dun & Bradstreet Corp.'s head count of business failures for the year just ended, which shows that they hit a new peak. But a look at the details of the statistics reveals some far more hopeful developments.

According to D&B's preliminary estimates, some 96,000 businesses closed their doors in 1992, about 9% more than in 1991, when the number of failures skyrocketed by 44%. And the dollar liabilities associated with these failures seem to have come in only slightly below the record $105 billion they reached a year earlier.

The silver lining in this generally doleful picture, says D&B economist Joseph Duncan, is evidence that failures may finally be turning the corner. For example, the year-over-year increase in business casualties, which was running about 20% in the first four months of 1992, gradually declined through the year. In fact, in both November and December, business failures actually slipped below their year-earlier levels for the first time since March, 1990.

What's more, while all regions of the U.S. experienced rising failure rates in 1991, most regions last year posted flat or slightly declining rates. The two big exceptions were California and New York, which together accounted for 7,100 of the 8,800 nationwide rise in failures through November, the latest month for which state tallies have been completed.

Even in New York, things have been improving lately, with failures up only 8% in November after running more than 50% above their year-earlier pace for most of the year. Only the Pacific region, particularly California, shows relatively little sign of improvement.

Another positive omen, says Duncan, has been a drop in the number of bankruptcies leaving liabilities greater than $1 million. Much of the surge in the number of failures in recent years, he notes, has involved relatively small businesses dragged under by a dependence on bankrupt large-company customers. Now that the incidence of megabuck business failures appears to be declining, the aftershocks in the small-business community should start to subside.

"Based on recent failure trends and the prospect of continued economic growth," says Duncan, "1993 could turn out to be a much better year for business, particularly smaller businesses."

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