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Are Surveillance Firms Exaggerating Business Failure Rates?

Coronavirus remains a sticking point even as we approach the end of 2021’s first quarter. Just how many businesses are surviving the heat?

According to the Oregon Office of Economic Analysis, micro-business is one of the most unprotected sectors. Most of them do not have adequate financial reserves, lack entry to capital markets like their counterparts, and most times, relationships with banks.

Sadly,  the office predicts that some micro-businesses won’t live through these challenging times and thrive. Right now, the concern is to inspect the extent of business closures and their implications on the general outlook. Existing predictions are perplexing. Surveillance companies that track performance through software and metrics show a catastrophic 30 percent of Oregon businesses have shut down.

The same data experts show an unimaginable  50 percent of hospitality and recreation services have capsized.

Though it takes a long time to gather reliable data on business failure, we can draw many insights from existing facts;

  1. Firstly, the count of functional business licenses has gone up 1.7 percent between Jan 2020 and Jan 2021, according to the Oregon Secretary of State. With the same breath, Oregon has seen more and more private-sector “business units.” Reports indicate a  2.9 percent jump between  2019’s Q4 to 2020’s Q3.
  2. Next, business failure is an inevitable challenge, even in a healthy economy. Even in the 90s, when the economy jumped, Oregon still saw 8 percent of its companies close down. The next expansion caused a slight improvement to around 7 percent of businesses shutting down per year. The worst it ever touched was 10 to 12 percent, all of which happened after the two severe recessions (the 1980s and 2008). So does that mean COVID just tripled failure rates? Or surveillance firms provided incorrect data?
  3. Businesses might have suffered last year, but PPP came to their rescue, even if late. While some small firms didn’t get financial backing amid tough times, Oregon businesses took up to $7 billion last year. This lump sum means most firms have enjoyed financial backing even amid tough times.
  4. Do we have enough data to back the 50 percent closures in hospitality and leisure?   – OLCC figures show the number of functional on-premise alcohol licenses went down just about 5 percent.  Moreover, alcohol license renewals remain at the highs of 92 percent across Oregon.

The Verdict

While it’s okay to go by data from surveillance companies, weirdly large discrepancies can raise red flags and warrant questioning. Also, let’s not focus on failing businesses and ignore the many COVID-inspired startups that are now the focus of many analysts.

Author Bio

Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.