[2020 National Audit] Average Debt of 40.3 Million KRW When Small Business Owners Close Their Businesses

Average Duration from Startup to Closure: 6.4 Months

Source: Small Enterprise and Market Service

[Asia Economy Reporter Kim Daeseop] It was found that it takes an average of 6.4 months for small business owners to go from startup to closure. The average debt at the time of closure was found to be 40.3 million KRW.

According to a survey on the recovery status of small business owners submitted by Koo Ja-geun, a member of the National Assembly’s Industry, Trade, and Small and Medium Venture Business Committee from the Small Enterprise and Market Service, although the number of new startups by small business owners is significantly increasing, making the closure rate seem to be decreasing, the number of closures has steadily increased and is estimated to reach 1 million annually based on recent data.

This survey on the recovery status of small business owners was conducted by the Small Enterprise and Market Service targeting 400 small business owners who closed their businesses and participated in the '2019 Hope Return Package Support Project.'

The main reasons for closure were ranked as follows: 'Decrease in store sales' (66.3%) as the top reason, followed by 'Others' (13.3%), 'Personal reasons' (8.8%), 'Lack of operating funds' (4.8%), and 'Burden of increased deposit and rent' (3.0%). Based on combined first and second priority responses, the order was 'Store sales' (44.2%), 'Others' (20.8%), 'Operating funds' (16.6%), and 'Burden of increased deposit and rent' (11.2%).

The average period from startup to closure was 6.4 months. By duration, 'less than 3 months' accounted for 48.3%, '4 to 6 months' for 27.3%, and '10 to 12 months' for 15.5%. The average debt at closure was 40.3 million KRW, with the distribution by debt amount as follows: 'less than 20 million KRW' (67.8%), '20 million to 40 million KRW' (13.5%), and '80 million KRW or more' (10.5%).

Regarding the number of closure experiences, 62.8% had closed once, 20.8% twice, and 16.5% three times. Among respondents, 37.3% experienced closure again after re-starting a business.

Regarding the decision to close based on operating profit, closures were decided when operating profit decreased by an average of 53.1% compared to the maximum operating profit over the past five years. Based on the monthly operating profit to debt increase rate, closures were decided when debt increased by an average of 39.3%.

Challenges during the closure process included 'Recovery of key money' (35%), 'Sale of business premises and disposal of existing equipment' (24.3%), and 'Complicated closure procedures' (10%). The top challenges after closure were 'Burden of livelihood maintenance after closure' (25.5%), 'Lack of knowledge, experience, and skills' (23.0%), 'Frustration and psychological anxiety due to failure' (14.8%), and 'Delinquent debts such as debt, taxes, and wages' (13.6%).

The most needed support areas for closure (business liquidation) as perceived by those who closed their businesses were 'Support for closure-related expenses' (42.4%), 'Provision of closure-related information' (25.5%), 'Consulting support related to closure' (16.1%), and 'Administrative support related to closure' (15.8%).

Assemblyman Koo Ja-geun said, "Although the number of small business owners closing due to COVID-19 and economic recession is increasing, government support policies are not properly promoted and their effectiveness is low, resulting in a low utilization rate. It is urgent to prepare support policies that are practically helpful to small business owners who close their businesses."

This content was produced with the assistance of AI translation services.