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Will Christmas Save Small Businesses This Year? Or Will We Have Bankruptcy Cases Instead of Small Businesses?

By Joseph McDaniel, Esq.

Every year, businesses look forward to the Christmas Season as the time that will save their balance sheets, and even their existence as viable businesses. In retail, the Christmas Buying Season can account for 40% of sales and profit.

I used to feel that Christmas had been over-commercialized; then I ran into some big chains that would not permit their employees to say "Merry Christmas".  I don't buy there anymore.

And I really do test 'em; if I Merry Christmas my way into a store and don't get any Merry Christmases back,  I cheerfully Bah Humbug my way out, and buy elsewhere!

Bloomberg tells us that among giant television manufacturers, the strategy will be to sell earlier and to sell for less, which means a gloomy Christmas if you manufacture televisions.

Now, consumers are pretty smart, and if they are not overwhelmed by emotions, they tend to buy intelligently. Since most consumers in the United States know friends and family who are out of work (remember that the real rate of unemployment is closer to 20% than to 10%), I expect consumers to use discretion when they buy this year.

And that means that there will continue to be business bankruptcy cases everywhere, both small business bankruptcy cases and big business bankruptcy cases.

Now, a lot of small businesses don't file bankruptcy; in many cases, only the owners file, and then they crank up another, smaller, more profitable business where they only work half-days (that's 12 hours, if you're not in on that old gag), after they receive their bankruptcy discharge. With lower rent, lower overhead generally, and fewer employees.

But a small business owner is more resourceful than any other life-form, so she's likely to hold on until it's well beyond obvious that the way she's doing it ain't the way that's working.

So we'll probably see a slowdown in bankruptcy filings as we get closer to Christmas, because some consumers keep praying for a miracle, and still want to use their credit cards to buy gifts for their kids, and small business entrepreneurs keep praying for a miracle, and hoping that consumers will use credit cards to buy gifts for their kids.

It's sort of a community of interest: both buyers and sellers praying for miracles. 

My personal prediction?

Well, remember that credit card companies are cheerful (Ho! Ho! Ho!) about raising interest rates to 38% if a borrower is one minute late making a payment on the internet, and that credit card companies are clever about limiting their losses; they have really smart algorithms, whatever they are, which tell them when it would be a good idea to reduce credit limits to the amounts that have already been borrowed. 

And that's why I predict as I do.

This will be a tight Christmas all around, and more bankruptcy cases of all kinds, from Chapter 11 cases for large businesses, to Chapter 7 cases for individuals, and Chapter 13 cases for folks who don't fall into any of the exceptions to the means test, and can't make it under the limbo bar that is the means test, and can't wait to file. Fewer Chapter 12 cases, because of the qualification hurdles, and besides, folks gotta eat.

Most of those will be filed after Christmas, so that consumers can use credit cards to pay for Christmas Gifts.

But some consumers will decide that if they stop making payments on their current credit cards in contemplation of bankruptcy, and stop making payments on their first, second, and third mortgages, that they'll have plenty of dough to pay for Christmas Gifts and an excellent, experienced Bankruptcy Attorney!

And just so you know, I'm praying for an economic miracle in this country, just the same as everybody else.

And fewer, rather than more, bankruptcy cases overall.

Full post as published by Arizona Bankruptcy Attorney Blog on November 15, 2010 (boomark / email).