Bankruptcies vs. business creations

During my latest weekly session at the Brussels Agency for Enterprises (BEA) I mentioned the record level of bankruptcies in Belgium. Since January 2008 the number of bankruptcies has increased by 35% as readers of this blog may have already read.

One of the candidates entrepreneurs objected that the increase number of bankruptcies was the consequence of a proportional increase of firms’ creations. I wanted to verify by myself and search the info on StatBel. To get the firms creation figure I summed up the figures of first VAT registrations, VAT renewals and relocation to Belgium. The two other figures available (relocation outside Belgium and business closure) were obviously negative figures that were not of interest.

Unfortunately the truth was slightly different from what the person at the BEA thought. Actually we reached in 2010 the level of 2007 back in terms of firms creation. The all-time low was reached in 2009 with 69665 units.

The number of bankruptcies get increasing over the 4-year span and started slowing down (but not decreasing) in 2009. However 2011 figures show that the increase rate is once again picking up.

My take:

At first sight it is not right to think that more bankruptcies are the consequences of more forms being created. If statistics were available for the years before 2006 we could research whether a postponed effect is visible since a bankruptcy logically happens x years after a firm was created. If we take a period of 3 years as a reference for the occurrence of 50% of the bankruptcies we may expect a decrease in 2011 (since creation of firms decreased from 2008 onwards). It is unfortunately not the case. It seems that records are about to be broken once again in 2011. 1165 firms went bankrupt in September 2011 which is an all-time high. There is something else happening out there.

The Brussels Center for Enterprises in Difficulties (CED) published early this year a report of its activities for 2010. It showed that more and more firms of more than 10 years are asking for help. Those firms were more or less absent in the previous years, which shows that they are suffering from the crisis too. The CED concluded that those firms were less flexible and that this lack of flexibility was among the reasons for the difficulties they were going through.

By Pierre-Nicolas Schwab Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)