Small-business bankruptcies continue to fall in B.C. as the province's economy remains strong, federal and provincial statistics show.
"Over the next year or so, the bankruptcies will continue to fall because business is generally good," predicts Earl Sands, a Vancouver-based bankruptcy trustee and author who operates the Bankruptcycanada.com website, which provides information to those considering such a move.
Federal figures from Industry Canada show B.C. business bankruptcies declined 14.4 per cent to 534 by Aug. 31 from 624 at the end of August 2004. Provincial figures from the Ministry of Small Business and Economic Development indicate business bankruptcies fell 16.5 per cent to 202 in the second quarter of this year from 242 during the same period last year.
Although neither Ottawa nor the province break the figures down between small and big firms, most of the bankruptcies likely occurred among small companies because they account for the majority of businesses in the province, says Sands.
According to federal figures, the construction sector accounted for the most bankruptcies in B.C. in August, as 16 firms filed for bankruptcy, with total liabilities of $16.6 million. The total number of construction bankruptcies reached 115 for the first eight months of the year - identical to the same period in 2004.
Retail trade accounted for the second highest number of bankruptcies in B.C. with 84 for the first eight months of 2005, but was still down 20.8 per cent from 106 a year ago.
Sands, author of the forthcoming book Bankruptcy Guide, published by Self-Counsel Press, says there's no other reason than the strong economy for the downward trend in bankruptcies in small businesses.
"Small business is more vulnerable to prices," says Sands, who has been a trustee for 18 years and recently sold his bankruptcy practice. "If there's a big loss on a job, they can be very vulnerable."
Many small-business owners also get too close to their businesses, he believes.
"One bad thing I often see is a small-business owner will see his business fail, and he'll put everything into it," says Sands.
He urges companies to put their "creditor-proofing" plans in place when they commence operations rather than when they start to experience financial problems.
He also advises small-business operators to get professional advice before the business commences, make only one spouse a director or officer (in order to minimize liability for certain statutory debts) and pay wages, the federal Goods and Services Tax and provincial taxes on time.
Small-business owners should also try to put significant assets in a spouse's name or family trust, never give a personal guarantee to suppliers or a landlord unless absolutely necessary, only borrow in the corporation's name, invest in RRSPs that are "judgment proof" and be cautious of rapid expansion while planning for succession well in advance.
Oil and gas, mining, real estate, financial services, professional services and public-administration firms are least likely to declare bankruptcy, according to federal statistics.
So far this year, no B.C. oil and gas, mining or utility companies have declared bankruptcy and only one public-administration company has gone bankrupt.
Provincial figures show B.C.'s bankruptcies have declined in all but one quarter since the second quarter of 2004.
Benjamin Tal, a senior economist with CIBC World Markets in Toronto, attributes the decline in bankruptcies to strong consumer spending and high productivity and construction activity.
He expects small-business growth to continue into 2007 and up to the 2010 Winter Olympics. "So we're very bullish on small business in B.C.," says Tal.
B.C. has also been able to take advantage of Alberta's oil and gas activity. Drilling activity is high in northeastern B.C. and most wells are operated by Calgary-based companies. B.C. is also expanding ports and pipelines to help move oil and gas from the Alberta oilsands to overseas and U.S. destinations.
He predicts B.C. will see a four-per-cent increase in small-business startups this year after a 4.1-per-cent increase in 2004 - which led the country.
"We think B.C. is actually improving slowly but surely over the last three or four years," says Tal. "It's really gaining momentum.”
Tal defines a small business as a company with fewer than 20 employees. He pinpoints three sectors where small-business startups will increase over the next few years: services, retail and construction.
(Monte Stewart can be reached at email@example.com)