Colorado business bankruptcies decline; startups on the rise

A record number of companies filed to start a business last year, but what does that mean? Plus: More money for rural startups, unemployment issues and the latest labor law poll tally

By Tamara Chuang, The Colorado Sun

Everything’s coming up in favor of business this week. Or is it?

The state had a?record number of new businesses?filing to start up last year. Fourth quarter, in fact, had the highest number of new entity filings in more than a decade, according to Colorado Secretary of State data. They increased 37.2% in the fourth quarter from a year ago, coming in at 48,806. Prior to 2021, filings were typically in the high 20,000s or low 30,000s each quarter.?

The uptick could be credited to?reduced fees?since July but the ongoing economic slowdown points to other possible factors, Secretary of State Jena Griswold said in a news conference this week.

“When people turn to entrepreneurship, that may mean that their wages they’re getting from their jobs are not sufficient,” Griswold said. “They could be second jobs, or third jobs. … The big picture is that America’s economy needs to work for Americans. When we see increased numbers of businesses, that’s a great thing. But ultimately (if) everyday life is really expensive, then that means that the American economy is not working and not for the middle class.”

There seems to be an ongoing disconnect between workers and employers, job openings and unemployment, new businesses starting up while others are dissolving.?

Another record set was how many companies dissolved in the fourth quarter, up 17% from a year ago. Meanwhile, those late on submitting required business forms grew 9.7% in the fourth quarter from a year ago.?

Brian Lewandowski, an economist at the University of Colorado who worked on the Secretary of State’s report, said the large boost in new business filings could just be people saving a spot as they work on a business plan. People may just be late on getting their paperwork in. The more businesses that start up, the more that might fail. He looks at U.S. census data for business formations, which showed Colorado had a slower growth. But the trend is that new business formation is growing.?

“It’s not 48,000. It’s a lower number, but it shows directionally that it’s still growing,” he said. “And statistically for us, it’s an indication of future employment growth.”?

He also looks at bankruptcy data. The number of businesses that filed for bankruptcy in Colorado continued its downward trend last year that began in 2010. He thought there would be a rush of bankruptcies in the pandemic but that was not the case, as seen in this chart showing that business bankruptcies in Colorado peaked at 32,529 in 2010. Last year, the number was 5,092, the lowest since at least 2006.

There was a slight increase in the third quarter last year but the numbers headed back down in the fourth quarter. That’s unlike the Great Recession when there was a huge spike in bankruptcies, Lewandowski said.?

“Maybe we can afford that third quarter (when) we saw an uptick,” he said. “I think that’s the promising signal that there have been very few forced closures of businesses.”

? Get the report.?See the fourth-quarter report or get an interactive look at new business filings, dissolutions and delinquencies by month on the the Secretary of State’s business index page.?>>?4Q report,?interactive chart

? Job report surprise —?U.S. employers added 517,000 workers in January, which was described as “unexpectedly strong” and “crushing estimates” Friday when the new?jobs report?dropped. The nation’s unemployment also fell to 3.4%, which is the?lowest since May 1969, Bloomberg News reported. The Bureau of Labor Statistics credited job growth in leisure and hospitality, health care, and professional and business services. U.S. average hourly earnings increased 4.4% to $28.26 an hour in January.?

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Read the rest of the column to catch up on rural startups and investment, the results of last week's poll, and other working bits >>

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