Colorado residents registered fewer new businesses and nonprofits in the second quarter, but they didn’t go into hiding, which bodes well for a recovery in the months ahead, according to the latest Quarterly Business and Economic Indicators from the CU Boulder Leeds Business Research Division and the Colorado Secretary of State.
“These new business filings are a signal for optimism of business growth in Colorado as we look ahead,” said Colorado Secretary of State Jena Griswold during a conference call Wednesday.
Despite the pandemic and state-at-home orders, the report said that 31,761 new corporations, nonprofits and other entities filed initial documents with the state. That’s down 7.8% from the first quarter, normally a busy period for startups, but only down 1.7% compared to the second quarter of 2019.
The turning point appears to have come on the week of May 11, notes Richard Wobbekind, senior economist and faculty director of the Leeds Business Research Division, which prepared the report.
“We started to see new entities filings returning to growth. This is very encouraging,” he said. Some of those startups will fill the vacant restaurant and retail storefronts created during the recession, others will take advantage of new opportunities in areas like telemedicine and remote work. And they should hire in the months ahead.
But it is important to note that a new filing doesn’t necessarily equal a new business. Most filings prove aspirational. Only about 17% of filings actually turn into a functioning business or nonprofit, Wobbekind said. And it will be important to track that conversion rate going forward.
Although Colorado appears to be faring better than most states economically, both Wobbekind and Griswold cautioned the road to recovery is a long one and progress will depend on the ability to contain the new coronavirus.
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The Colorado economy shed 342,700 jobs from January through April, and added back 126,000 in May and June. That pace of recovery is expected to slow, given the resurgence of the outbreak and upcoming job reductions. Airlines are looking at large layoffs in October, something they have avoided so far with federal assistance. Declining tax revenues will likely push more local governments to shed workers. And small businesses and nonprofits that relied on the Paycheck Protection Program to keep staff have largely depleted those funds.
But given the severity of the downturn in the second quarter, the report shows underlying strength in the Colorado economy and the willingness of entrepreneurs to step into the gap. Existing entities in good standing rose 12.2%, trademarks rose 9.7% and trade names rose 1.3% year-over-year.
Dissolution filings, which reflect a closure or an entity that never got off the ground, did rise 5.2% in the second quarter over 2019 levels, but that measure of distress tends to lag. Wobbekind notes that dissolution filings in 2008’s Great Recession didn’t peak until 2011.
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