Show BUSINESS and the tha STOCK MARKET by bv BABSON'S REPORTS Copyright 1972 BUSINESS FAILURE TRENDS While fewer businesses are arc going broke vs vs a a year ago the number is still high and spurts from time timeto to time Moreover the sums involved are sizeable and rising Government and private economists are keeping close tabs on these failure trends What is behind them What lies ahead Number and Liability In 1971 U. U S S. S business failures totaled down four per cent from the three year high of recorded in 1970 In each of final six months commercial com com- commercial mercial and industrial casualties dropped below levels for the corresponding 1970 period Even so the number of business failures though well vell down from the highs of toe tle late and early is still too large for comfort Dollar liability of business failures last ast year eat se to a new record of 19 billion The The rate rat of increase i n c r rea e a s e for the year however was a mere two per cent compared with the hefty 65 per turn that occurred between 1969 and 1970 If this improvement continues dol dollar lar liabilities in 1972 may be held near the billion 2 mark Busi Business ess Cycle Still Rules Usually during the early and middle stages of a business recovery the number of failures is relatively small and doesn't vary too much from month to month or even from ye year r to year In such periods consumer demand is accelerating faster than goods are being produced and sellers sellers' are firmly ensconced ens enss in the drivers driver's seat It is only in the latter stages of an economic up-push up when output is rapidly rapidly rap rap- idly overtaking demand or has already overtaken it that failures begin their climb multiplying as general business slides off from its highs The Up and Up Fallacy But business slumps alone do not trigger trigger trig trig- ger skyrocketing failures More often than not it is poor management practices practices tices that lead to the of failure because they are arc not or cannot be corrected in time to offset the debilitating impact of economic slowdown The major cause of business fatality is unwise unwise un un- un wise expansion during a boom especially when that expansion is financed by unrealistically unrealistically un un- realistically heavy borrowing The urge to get ahead rapidly and to obtain a larger piece of the action is overriding and causes many businessmen to act rashly They do not stop to consider objectively objectively ob oh- how far and how fast they should expand or whether they should branch out at all As for new businesses which fall by bythe bythe bythe the wayside when the going gets rough most run into trouble when they face the necessity of going out and doing a areal areal areal real selling job Little effort was needed to move goods in In Inthe the mid mid But it has been different since supply overtook demand and inflated volume to shrink Watch Your Debt Level Broadly speaking demand Is now starting on an upswing That is the main factor in the less ominous failures figures of recent months The Research Department of Babson's Reports expects expects ex ex- industrial ind production GNP retail sales and other leading economic indicators indi to point more consistently upward as 1972 moves along However both large and small businessmen busl busi should temper their optimism with more than just a dash of caution For the cost of doing business will be bo rising between now and years year's end with heavier tax bites higher average labor costs casts and selected price boosts While White improved volume will make for better profits margins will be narrow Lift un your selling sights yes Expand plant and production But keep a tight control on costs and avoid going too deeply into debt Scale your borrowings down downto to what you can repay even if you reverses But Dut if you will need cash for expansion later this year borrow borrow bor bor- row soon for interest rates rates' will wilf work higher after midyear |