Even for Horizon's founder, a veteran of the convenience-store industry, the speed at which the tables turned was astounding. "It was like a tsunami," James Alligood, the former Mapco executive [image-nocss] who started Horizon in 2003, told The Tennessean. "We would dodge one bullet and the next day, there were two bullets. We did everything we could, but it just ran over us."
The sour economy has run over a lot of businesses such as Horizon recently. Since June, more than 200 companies based in Middle Tennessee have filed for bankruptcy protection, ranging in size from handyman and plumbing services to restaurant chains. [Read more about how the credit crisis is affecting the convenience-store industry in the December issue of CSP magazine.]
Each is evidence of how the clampdown in consumer spending and the tightening of credit-by businesses, as well as banks-is putting a chokehold on the region's small enterprises.
Through Nov. 10, 331 business bankruptcies, many of them filed by small businesses, had been recorded in the U.S. Bankruptcy Court for the District of Middle Tennessee this year, nearly double the number filed in all of 2007, according to the newspaper. And the pace appears to be accelerating.
Local businesses are only beginning to absorb the shock from the Wall Street lending collapse and the dramatic slide of the auto industry. As these blows work their way through the economy, even more local companies probably will be pushed to the brink, observers said.
"I don't think you've seen anything yet," John McLemore, a bankruptcy attorney with the Nashville firm Garfinkle, McLemore & Walker, told the newspaper. "The business community in Nashville is a smart group of people. They're saying to themselves this is not looking good."
The rise in business bankruptcies has been building throughout the year, with each quarter worse than the last. The 121 businesses that filed for bankruptcy protection in the third quarter, which ended Sept. 30, represented a 147% increase over the same period in 2007.
Since then, an additional 52 companies have gone into bankruptcy, putting the current quarter on pace to be the second three-month period in a row in which filings will top 100 businesses.
Many of these companies have fallen victim to the quick deterioration of the economy. Rising gas prices and falling home values began to take a bite out of consumers' wallets in the early spring, and it was not long afterward that business bankruptcies began to take off.
"A lot of small businesses, they kind of operate hand to mouth," said Joe Rusnak, a business bankruptcy specialist with Tune, Entrekin & White. "They don't plan for or expect a lot of untoward contingencies."
Horizon was among the earliest casualties. The company began to feel pressure on its bottom line last year, when gasoline prices began their push to $4 a gallon.
Higher prices meant lower margins at the pump, and it meant drivers had less money to spend on high-profit items sold inside Horizon's convenience stores. As the company's cash reserves started to dwindle, suppliers that had given Horizon 20 days to 30 days to pay its bills began demanding payment in half that time.
"That effectively took away the working capital that we had," Alligood said.
Horizon filed for Chapter 11 bankruptcy protection in June. Efforts to reorganize the company failed, and in August, Horizon shut down for good.
Horizon's failure is rooted in the economics of gasoline prices, but it also shows the degree to which credit has tightened around struggling businesses, observers said.
"Banks are calling in loans that normally they would not," said Steven Lefkovitz, a bankruptcy attorney with Lefkovitz & Lefkovitz. "It's been spiking up for a while, but I think it's now really to the point where banks are trying to collect any money they can."
Other companies also have become less patient. With bankruptcies on the rise, they have begun to worry that their customers will renege on accounts receivable and other business-to-business credit.
"I'm seeing creditors, businesses that have loans out, they're saying, 'I've been walking around with this guy for the last six months. I need to know what I can do to push this along,' " McLemore said. "They're asking, 'What's going to happen to me if this guy goes into bankruptcy?' "
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