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LARRY KANTER Staff Reporter

The number of business failures in Los Angeles County jumped 11 percent in 1996.

And that apparently grim statistic, according to a number of local economists, actually qualifies as good news.

Rather than indicating mounting financial hardships, a rise in business failures also can suggest that people are feeling confident enough about their economic futures to take the considerable risk of starting a small business.

That’s how several economists interpreted a report on business failures issued last week by Dun & Bradstreet Corp.

According to that study, 3,363 L.A. County businesses failed in 1996, an 11 percent jump from the 3,300 local companies that threw in the towel in 1995.

“One of the characteristics of a healthy economy is that more people are willing to try their luck in starting a business,” said Tom Lieser, associate director of the Anderson/UCLA Business Forecasting Project. “The number of businesses that fail in a strong economy will be greater than in a weak one.”

Analysts agreed that without corresponding numbers of business formations to compare them to figures notoriously difficult to come by it’s difficult to know exactly what a 22 percent increase in the number of business failures means for L.A. County.

However, bolstering Lieser’s assertion that the rise in business failures is due to a larger rise in business formations is the fact that the aggregate financial liabilities of failed L.A. County businesses dropped by 26.8 percent from about $3.8 billion in 1995 to about $2.8 billion in 1996.

That averages out to each failed business having liabilities of about $750,000.

That figure, economists say, suggests that the majority of firms which went under in 1996 were small start-ups barely out of their infancies, rather than large employers buried by mountains of debt.

“It’s a positive indicator,” said Lieser.

In compiling business failure statistics, Dun & Bradstreet counts firms that ceased operation for reasons of bankruptcy, foreclosure or receivership, as well as those that voluntarily shut down leaving unpaid obligations or voluntarily compromised with creditors. Businesses that closed with creditors paid in full are not included.

The trend of more businesses going belly-up was not limited to Los Angeles.

According to last week’s report, a total of 16,871 California businesses went under last year, a 3.5 percent increase over 1995.

In San Diego County, 2,400 firms closed their doors last year, a 4.8 percent increase from a year earlier.

However, Orange County bucked the statewide trend by reporting 1,608 business failures in 1996, a decrease of 4.9 percent from 1995.

Nationwide, approximately 71,800 businesses failed last year, an increase of about 1 percent from 1995.

The numbers also suggest that L.A. is not the only place where relatively young companies comprise the bulk of failures.

Dollar liabilities nationwide dropped from $37.2 billion in 1995 to $34 billion in 1996, a decrease of 8.8 percent. The aggregate liabilities also dropped in both San Diego (down 25.3 percent) and Orange (down 26.3 percent) counties.

According to Joseph W. Duncan, chief economic advisor to Dun & Bradstreet, the figures spell good news for the nation in 1997.

“Given the relatively low level of unpaid debts associated with those failures, they are unlikely to have much economic impact,” Duncan said in a statement. “The trend points to sustained growth for the foreseeable future.”

Economists expressed a similar prognosis for Los Angeles.

“There are a lot more businesses being created,” said William B. Gartner, a professor in the entrepreneurship program at the USC School of Business Administration. “New ventures are experiments. Sometimes they work, and sometimes they don’t. You actually should expect some failures.”

Gartner added that, with more than 100,000 businesses operating in L.A., the failure of 3,663 “is pretty insignificant.”

Jack Kyser, chief economist for the Economic Development Corp. of L.A. County, said the 11 percent jump in business failures posted in L.A., as well as the drop in liabilities, reflects the changes that have swept through the local economy in recent years.

“We used to have a Fortune 500 economy,” Kyser said, dominated by relatively few large employers.

But in the wake of the recession, which included significant downsizing in the defense industry and major layoffs sparked by bank mergers and the like, “we have a new, entrepreneurial economy,” Kyser said. “This indicates that there are a heck of a lot of risk-takers out there.”

The business-failure numbers come on the heels of a report that a record number of L.A. County residents filed for personal bankruptcy last year.

According to CDB Infotek in Santa Ana, 53,865 Angelenos filed for Chapter 7 or Chapter 13 bankruptcy protection in 1996, a 64.2 percent increase from 1995 and by far the most of any California county.

Nonetheless, analysts were as blas & #233; about that report as they were about the increase in business failures, attributing the leap to an increased willingness of individuals to use bankruptcy as a tool to keep creditors at bay.

“Banks have been playing a game of how much credit they can force on people,” said USC’s Gartner. The rise in personal bankruptcies, he added, is “a reflection of bank credit issues more than it is a general economic trend.”

Michael Bazdarich, president of the consulting firm MB Economics in La Canada Flintridge, said that neither business failures nor personal bankruptcies are accurate gauges of a region’s economic health.

Instead, he pointed to such factors as retail sales, job creation, residential and non-residential construction all of which grew in L.A. County in 1996 as more reliable indicators of economic well-being.

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