ST. PAUL — Starting a business in Minnesota involves a certain amount of paperwork.
Registering a business, buying insurance, and obtaining the proper licenses and tax documentation, then, leaves a paper trail that state officials and academics can use to gauge the rate of new business formations.
Despite that paperwork on the front end, it is difficult to say how many Minnesota businesses shut down in 2020 because of the coronavirus pandemic.
That's because businesses do not have to report their closures to the Minnesota Office of the Secretary of State, with which they register in the first place, according to spokesperson Risikat Adesaogun. When a business closes its doors for good, it's far more likely that they'll just stop renewing their registration.
Since many businesses already forget or don't know to renew their registrations, Adesaogun said, "there is not a strong correlation between the businesses who get dissolved due to nonrenewal and businesses who have actually, officially, gone out of business."
According to the secretary of state's office, a total of 4,996 businesses did file for business cancellations, withdrawals or dissolutions in 2020. That's 116 fewer than the year before — despite the heavy toll the pandemic took on the economy and employment in 2020. The number of cancellations and withdrawals filed each year has fluctuated by only a few hundred going back to 2016, never increasing or decreasing much from 5,000 annually.
Similarly, and at the national level, the number of bankruptcy filings decreased by nearly 30% last year. According to the U.S. Courts Bankruptcy Filings, 544,463 bankruptcy cases were filed in the U.S. last year, compared to 774,940 cases in 2019.
King Banaian, a professor of economics at St. Cloud State University's School of Public Affairs, said the number of filings could increase in 2021. Bankruptcies, he said in an interview, "tend to be somewhat backloaded — firms that try to hang on and then don’t make it."
But the lower volume of filings may also be attributable to the widespread shuttering of courthouses due to COVID-19, the illness caused by the novel coronavirus.
Banaian, who tracks indicators of economic health, said preliminary data show that the number of new businesses filings submitted last year actually increased from 2019. It's possible that those who lost their jobs last year may be striking out on their own — which he said is typical during recessions — or left unsafe workplaces for fear of contracting COVID-19.
"Remember, most business formations are sole proprietorships. It’s one person, no employees," Banaian said.
"But some data from the U.S. Census seems to indicate there’s even been a rise in the number of businesses who are getting those employer identification numbers," he continued, referring to a numbers assigned by the IRS, "and signaling, 'We plan to hire employees.' That number has gone up, which is a bit of a surprise at this point in this recession."
Low interest rates and the growing acceptance of working from home, if not the outright demand to do so, could also help to explain what is driving the formation of new businesses, Banaian said. It's just too early to say for sure.
Government aid, whether in the form of the Paycheck Protection Program or a similar state program, may have helped ailing businesses cling to life this past year, according to Banaian. But public funding also continues to pour into the development of new businesses, which Launch Minnesota Executive Director Neela Mollgaard said in an interview could likewise help to further revitalize the economy.
Part of the the Minnesota Department of Employment and Economic Development, Launch Minnesota this month awarded $450,000 in grants to six organizations supporting the development of startup businesses in the state that Mollgaard called "on-ramps" for entrepreneurs.
"They are a point of contact in communities across Minnesota that want to see our businesses succeed, and now have the connectivity to connect them to the right people, the right places, the right funding sources that they need to succeed," she said.
Contact Matthew Guerry at firstname.lastname@example.org or 651-321-4314