The cruel reality of owning a business is sometimes they fail, writes Peter Watson.
There is financial hardship within the business community. Some businesses are closing their doors.
We recently went on a shopping outing in a different community. The stores seemed surprisingly deserted. One business owner explained what we noticed.
Business activity in their store as well as other stores in the community was down. People like to think when times get tough just put your head down, push forward by working harder.
The reality in this community was customers were not shopping. If there is no one in your store you are not making sales.
Our shopping observation of business slowdown is supported by the federal Office of the Superintendent of Bankruptcies during the first quarter of this year. The number of businesses that became insolvent had risen 87 per cent from one year ago.
A few years earlier the business environment was much stronger. Massive government subsidies were given to combat the economic slowdown of the COVID-19 pandemic. Plus, interest rates were rock-bottom.
Business activity was strong. But now, times have changed.
Business owners take significant financial risks. Many invest their own money in their enterprise and any bank loans are most likely secured personally by the business owner and potentially include a mortgage on their house.
A business failure because of the business slowdown can be economically devastating. Much more so than employees of these businesses that lose their job.
A job loss usually entitles the ex-employee to severance payment. And it is rare that the employee would have their personal funds tied up in the business. It is very common that a business owner, out of necessity, has a significant amount of their investment capital tied up in the business.
A business failure means that staff lose their job, which is a financial hardship. The business owner loses the business and likely significant personal funds.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
