A record number of businesses closed their doors during the first quarter of 2008, alarming state officials about the struggles facing enterpreneurs.
During the first three months of the year, 2,752 businesses were dissolved, the most in any period in the past eight years. And 1,107 of those dissolutions occurred in March.
“Connecticut businesses are clearly struggling to stay afloat as the national and state economy continues to see a major decline,” said Secretary of the State Susan Bysiewicz.
The number of new businesses — at 7,761 for the quarter — also dropped to the lowest number since the first quarter of 2003.
Connecticut small businesses face a host of procedural obstacles and special taxes that make it difficult to flourish during downturns in the economic cycle, according to former Congressman Rob Simmons, the state’s first business advocate.
Entity Tax
One of the most annoying burdens, Simmons said, is Connecticut’s annual $250 business entity tax.
Since its inception in 2002, the law has required limited liability companies, partnerships and “S” corporations to pay $250 every year regardless of their financial circumstances. According to Simmons, it winds up stifling new entrepreneurs.
“Businesses pay the tax whether they make money, lose money, or break even,” Simmons said. “If a small entrepreneurial effort is not doing well, they still have to pay the tax, which is an incentive to dissolve the business.”
Despite its negative effect, Bysiewicz sees the business entity tax staying in force.
“There was a lot of bipartisan support to eliminate the tax,” she said, noting that the state’s $200 million surplus recently fell to more than a $50 million deficit.
“We need $30 million in the surplus to pay for its elimination,” she said. “It would be a golden opportunity to eliminate it, but the revenue projections may not happen.”
Tough Times
With issues such as the entity tax coming to the forefront in the legislature, it’s a sign that times are tough for entrepreneurs.
“I don’t think that the business failures are solely attributable to this tax continuing, but it is a nuisance tax, and another thing that business owners have to pay for,” Byciewicz said. “They have to pay this just for the fact that they exist.”
But there are other factors contributing to the rising business failure rate, according to Byciewicz. She cited high utility prices, gas prices and less consumer spending as reasons why businesses fail.
At the same time, Simmons and Byciewicz both point to cases where young businesses have flourished despite the general economic downturn.
“Connecticut business owners are very creative and savvy,” Byciewicz said. “The businesses that manage to be successful in a competitive economy are the ones that do their research and explore their opportunities.”
Simmons, who served as a state representative from the 43rd District from 1991 to 2001 and as Congressman from the 2nd District from 2001 to 2007, can also count success stories since the governor appointed him state business advocate.
“I’ve visited a number of companies that have more orders than they can fill, or need to expand to a larger facility and are extremely productive,” Simmons said. “There are still many positive things taking place in the state.”
The Bullpen
Simmons has been working to bring representatives from nearly 20 state agencies together to help businesses achieve more productive results.
At the Connecticut Business Expo at the Hartford Convention Center on June 5, Simmons will coordinate a business resources bullpen, where small businesses can get free advice on a host of issues such as permitting, training, financial assistance, tech training, environmental regulations and labor issues. (The Hartford Business Journal manages the Expo.)
Among the agencies that are expected to have representatives at the Expo’s Business Resource Bullpen are the CT Department of Administrative Services, CT Department of Public Utility Control, CT Department of Transportation, Office of the Secretary of the State, Connecticut Community Investment Corp., Microenterprise Resource Group, CT Department of Economic and Community Development, U.S. Small Business Administration, Procurement Technical Assistance Program, Metropolitan District Commission, SCORE, CT Small Business Development Center, CT Department of Labor, CT Department of Environmental Protection, Community Economic Development Fund, Smart Start/CTCLIC, and the CT Business Response Center.
