Economy Squeezing Businesses Across SC
By Andy Owens
Charleston Regional Business Journal

Business dissolutions are up 50% across South Carolina, and the rate of growth for new startups has slowed, according to numbers from the Secretary of State’s office and the Department of Revenue.

Nearly 19,000 businesses dissolved in the past 13 months, an increase of more than 6,000 from the previous year. Charleston CPA firm Jarrard, Nowell & Russell said it’s a trend the firm’s CPAs have been watching as the economy has slowed down, and, not surprising, it started in the real estate industry.

“It’s been in waves,” CPA Bill Jarrard said. “Last year, when you had the real estate market slow down, you had a lot of spec homes. It’s just sort of been an evolution.”

The dissolution numbers could be more startling because 12,456 of them were administrative dissolutions, which the Secretary of State makes when a business is found to be in forfeiture. Renee Daggerhart, executive assistant to S.C. Secretary of State Jim Hammond, defined “forfeiture” as the state in which a business isn’t following statutory guidelines and is found to be “not in good standing.”

In fiscal 2006-07, a net of 1,745 new businesses were added to the economy. “We’re definitely seeing fewer people starting new businesses,” Jarrard said. “There’s not much of that going on.”

Economic indicators

The number of businesses dissolving and those starting up indicate part of the economic climate for businesses across the Palmetto State. Which industries are hit the hardest and the resulting jobs losses can vary greatly from one county to the next.

For example, South Carolina’s unemployment rate for August 2008 was 7.6% statewide, but ranged from 17.2% in Allendale County to 5.6% in Lexington County. The tri-county tended to be on the low end, with Berkeley County seeing the highest rate, at 7.4% — still below the state average.

The state has lost 7,000 manufacturing jobs and 17,000 construction jobs during the past 12 months. The only increases in jobs came in education, health, hospitality and government, which posted 10,400 jobs. The situation is hampering the state’s ability to pay unemployment benefits, said Roosevelt T. Halley, executive director of the S.C. Employment Security Commission.

“With recent high unemployment rates, the state has been draining its trust fund,” Halley said. “But a lot of states are in the same situation.”

Employment numbers also are affecting the amount of taxable income available at the state and local levels. As businesses drop off, so does taxable income. South Carolina’s 120,042 businesses generated $62.5 billion in taxable sales in fiscal 2006-07, according to the Department of Revenue. That’s up $3.2 billion from the previous year.

The state’s chief economist, Bill Gillespie, said unemployment numbers in June indicated to him that the state was feeling the effects of a recession. Technically, no formula for a recession exists in the state, and the Board of Economic Advisors looks at year-to-year employment numbers to negate any seasonal effect.

“South Carolina, in my opinion, went into recessionary conditions in June,” Gillespie said. “In June, we went flat. In July, we were less than last year. We didn’t have any summer hiring is what really happened.”

Prenups for businesses

A lot of small businesses are struggling with how to break up during the economic downturn, according to the CPAs at Jarrard, Nowell & Russell. They advise businesses to make separation plans part of a business plan before partnerships are formed. A lot of businesses don’t, however, their focus narrowly pinpointed on the idea, market share and money flowing in.

The lesson can be expensive for businesses that don’t have a plan in place and must procure legal and accounting services to help untangle issues of liability, liquidation of assets and control of any intellectual property.

“It’s a prenup,” CPA Christopher Nowell said. “It’s expensive, but, boy, it’s a whole lot cheaper than the costs you see on the back end.”

There is no one-size-fits-all package of advice; every business must be evaluated on its own merits and on the variables that might influence its ability to function, including the commitment of the partners involved. But the third-party view of an accountant or a business attorney often results in positive changes that partners don’t see close-up.

Some businesses can be saved or sold to a third party, CPA Will Russell said. A lot depends on how the business was set up, how much value it has maintained and whether issues such as cash flow problems can be worked out.

“There’s a chance it can be saved with some fundamental business advice,” Russell said. “Obviously, seek the advice of a business attorney. Plan for the divorce before you get married.”

Reach Andy Owens at 843-849-3141.

Jarrard, Nowell & Russell is a certified public accounting and business advisory firm based in Charleston. We can be reached at (843)723-2768 or cnowell@jnrcpas.com.