Monday, March 1, 2021

More US business start-ups in 2020 Q3 than in past 20 Covid-free years

Pandemic business closures are a wake-up call to employees who were snoozing through the comfy times.

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Plenty of American small businesses are going belly up in the pandemic, but in a surprising development, nearly 1.6 million new business applications were filed in the third quarter of 2020, a figure which far exceeds the number of start-ups in any year since the turn of the century.

The pandemic seems to be the major cause with people responding to the potential, or reality, of losing their jobs.

Covid-19, and the resulting business closures and layoffs, has obviously become a wake-up call to businesses of all sizes and workers who were snoozing through the comfy times.

Many, if not most, workers often have vague notions of one day starting out on their own. The pandemic is apparently pushing many to do more than daydream.

“I think there’s some sense that people are coming up with a plan B,” Adrian Hernandez, of Dundee Bank of Nebraska told the International Business Times. “Pandemic layoffs may have created some sense of urgency among people who might now start a business out of necessity.”

Buying into a franchise is one route for people to start a new business. Franchise consultant Tom Scarda has seen business pick up after a few slow pre-pandemic years when unemployment rates kept dropping and people assumed their future was safe.

“A lot of people are now uncertain of the future in their career,” Scarda said. “Or they may realise the office isn’t a destination they want anymore. People are at home and saying to themselves, ‘Wow, I really enjoy this, and I don’t want to return to the corporate rat race.’”

Millions of Americans are getting nervous about how they and their children will prosper in 2021 and beyond in a world where Covid is in retreat yet still a real threat.

“There are a lot of folks who are at home and they’re concerned that their company’s not going to be there when this thing lifts,” said Scarda. “They’re looking for alternatives.”

Lending activity has been on the rise for Dundee bank, Hernandez said. “But if you’re of a certain age with a certain level of skills and experience, if you have something of a nest egg built, you can at times pivot and start a business with only a brief conversation with a bank.”

The surge in new business filings may mean a great future for the economy, but it’s too early to know yet.

“Largely speaking, most new firms fail,” said Andrew Butters, an assistant professor in the department of business at Indiana University. “And despite the surge in new business formations, we’re nowhere near in the black in terms of employees.

Butters commented that most of the filings are for the types of business used by independent contractors and self-employed people. Only about a third have a high chance of ever hiring employees.

As he puts it: While the crowds flocking to register new business ventures is a good sign, it is no guarantee that the economy is heading out of the woods any time soon.

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