The Rise of Subchapter V

Bankruptcies are increasing, but the filings are coming under Subchapter V, which makes it easier for financially stressed small businesses to restructure.

Good Morning!

Here are today’s highlights:            

• You can make more than $180,000 a year managing a fast-food location.

• There is one clear benefit from remote work: It’s brought mothers back into the workforce.

• Retailers can struggle with “Christmas creep.” It’s hard to get the balance just right.

• Etsy shops are sustaining families in war-torn Ukraine.

BANKRUPTCY

For some businesses, there will be no soft landing: “Paper Plane Deli and Market in Charlotte, N.C., opened in March 2020, days before the city’s pandemic-related shutdown. Once the business was allowed to resume in-person dining, labor costs jumped by roughly 35 percent, owner Amanda Cranford said. She tried opening food stalls in other local businesses to boost traffic and revenue, but those efforts didn’t pay off. ‘I had staffed up to grow,’ Cranford said. ‘You can imagine how fast labor bleeds the profit out.’ Paper Plane closed at the end of September, giving Cranford more time to focus on Dish, a 21-year-old restaurant she also owns. The establishment, which closed for three months to replace its fire-suppression and ventilation system, faces increased competition from new entrants, she said.”

• “Small-business bankruptcy filings are rising this year, a signal that increased interest rates, tighter lending standards, and higher operating costs are straining entrepreneurs. At the same time, some government aid programs that helped entrepreneurs through the Covid-19 pandemic have ended.”

• “The increased bankruptcies are coming from filings under Subchapter V, a newer provision in federal bankruptcy code that makes it easier for financially stressed small businesses to restructure. Nearly 1,500 small businesses filed for Subchapter V bankruptcy this year through Sept. 28, nearly as many as in all of 2022, according to the American Bankruptcy Institute.”

• “Congress created Subchapter V, which took effect in February 2020, because standard Chapter 11 bankruptcy filings were expensive and too restrictive for small companies, making it difficult for them to get a fresh start. Increased familiarity with the new options has contributed to an increase in filings, as has a temporary lift in the debt limit for Subchapter V filings to $7.5 million from $2.7 million, bankruptcy attorneys say.” READ MORE

HUMAN RESOURCES

Fast food chains are paying managers as much as $180,000: “According to the Bureau of Labor Statistics, the annual mean wage of a restaurant food manager is $63,820 as of May 2022. But chains like Chipotle, Taco Bell, and In-N-Out Burger are paying some managers much higher than the industry standard, with salaries topping $100,000. At In-N-Out, a restaurant manager can earn more than $180,000 a year. To put these rare six-figure salaries into perspective, these managers are running one store. At McDonald's, a district manager supervising about five Midwest stores makes anywhere from $65,000 to $80,000 a year, according to LinkedIn job postings. The way these chains see it, paying top salaries to store managers leads to top results.”

• “The average pay of a store manager at the iconic fast-food chain is more than $180,000 per year — including store profit-sharing, [In-N-Out] owner Lynsi Snyder wrote in her soon-to-be-released book about the chain's history. In the 208-page book, Snyder reveals how her grandparents, Harry and Esther Snyder, created a fast-food empire by, in part, paying employees and managers handsome wages.

• “But to become an In-N-Out manager, you must work up from the bottom and learn every role necessary to run a restaurant, including working the drive-thru and flipping burgers.”READ MORE

Remote work has brought mothers back into the workforce, especially mothers of young children: “Nearly as many women are working now as before the coronavirus pandemic. Women’s labor-force participation was 57.9 percent in February 2020 and 57.7 percent last month. So-called prime-age women—those from 25 to 54—are working in even greater numbers: More than 77.6 percent of them are in the workforce, compared with 77 percent before the pandemic. Perhaps more surprising is the group of women whose employment has rebounded the most: Women whose youngest child is under 5 are ‘powering the pack’s upward trajectory,’ a recent Brookings Institution report found. In particular, mothers of young kids who are highly educated, married, and/or foreign-born are working in greater numbers today than before the pandemic.”

• “‘Labor force participation among mothers with young children who have at least a bachelor’s degree has exceeded its pre-pandemic peak,’ the Brookings-report authors, Lauren Bauer and Sarah Yu Wang, write. The rebound has been so dramatic that, when I emailed Misty Heggeness, an economist at the University of Kansas, she emailed back, ‘What she-cession.’”

• “Across Europe and America, work-from-home days have quadrupled since the start of the pandemic, and 35 percent of Americans who can do their jobs from home now work remotely all the time, compared with 7 percent before the pandemic. Last year, women were more likely to work remotely than men were, and women are generally more interested in remote jobs than men are. Julia Pollak, ZipRecruiter’s chief economist, told me that surveys the job site conducted show that 54 percent of men and 69 percent of women are interested in remote jobs.” READ MORE

THE 21 HATS PODCAST: DASHBOARD

About that government shutdown: When Gene Marks and I recorded this episode of Dashboard on Friday, we were pretty sure the government was going to shut down. That, of course, didn’t happen so you can fast-forward through our brief remarks early in the show—or perhaps you would enjoy hearing Gene state confidently that he’s known all along that a shutdown was inevitable. We also discuss what Gene’s been hearing from business owners as he criss-crosses the country talking to various groups. And Gene talks about the IRS’s decision to suspend the ERC program and what you should do if you fear you may have been overly aggressive in your application. Plus, he explains why he hates LinkedIn but keeps using it anyway. -- Loren Feldman

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

RETAIL

Small retailers do not want to debut holiday displays too early—or too late: “Las Vegas beat a number of heat records this summer, but that didn’t stop one of the city’s warehouse stores from putting out faux Christmas trees on a Saturday in August. ‘You’ve got to be kidding me,’ says Las Vegas resident David Langdon. ‘Total turnoff. Holiday merchandise is best put out after Halloween, and I’d prefer it closer to Thanksgiving.’ The premature holiday-decorating choices at big-box stores have been the butt of jokes for years, of course. It even has a name in merchandising circles—Christmas creep. But the truth is, it doesn’t make much difference: Shoppers don’t go to these stores for the ambience, and Christmas trees in August aren’t going to stop them from walking through the door.”

• “Small businesses don’t get off so easy when it comes to their holiday decorations. Unlike the megastores, they rely on personal relationships with customers, and creating a welcoming vibe that the big names can’t. That means store owners are doing a delicate dance: If they put out decorations way too early, it could ruin the personal atmosphere and alienate shoppers. But if stores wait too long, they could lose out on critical early holiday sales.”

• “At Daisy’s Mercantile in Alameda, Calif., planning for the winter holiday season starts in January and goes on all year behind the scenes, says owner Barbara Mooney. But the holiday sales pitches don’t start until October.”

• “Originally, she started decking the halls in late October, but let the process stretch into mid-November—so that she would be decorating in the middle of the pack of local stores. Then, one year, the store had a huge leak from upstairs, and she couldn’t begin her decorating until the week before Thanksgiving. ‘Our Christmas sales tanked that year,’ she says.” READ MORE

ECOMMERCE

Ukraine-based Etsy shops have had the highest sales rates in the world: One day last October in the southwestern Ukrainian city where Olena Hryhorenko lives, the lights went out. Her house lost access to electricity, water, and the internet. The streets turned pitch-black. In the darkness, she reached for a flashlight and started to knit. The blackout, caused by Russian attacks on Ukrainian power systems, lasted two days in Hryhorenko’s city of Bilhorod-Dnistrovskyi and set the tone for a brutal winter of energy rationing and rolling blackouts. Over the next several months, Hryhorenko had electricity and water for four to six hours a day. At night, her family continued to dedicate limited battery power so Hryhorenko could practice her craft by flashlight. Hryhorenko, who is 19 and a university student, has knitted since she was 12 and started an Etsy shop called Toysknit in 2018, selling knitted deers, squirrels, and bunnies in Easter and Christmas garb.”

• “Per capita, Ukraine has more Etsy items for sale than every large European country except the United Kingdom and Germany. It’s a skill that’s become a lifeline over the last 19 months. During the war, selling on Etsy and other digital platforms has been one of the surest ways to make money in an economy ravaged by war. For some Ukrainians, at times it’s been the only way.”

• “‘It’s hard to imagine any Ukrainian family without at least one embroidery or knitting lover,” says Anton Gladkov, who runs the store WonderlandUkraine. ‘Over the years of [having a store on] Etsy, I realized that this is really much more developed in our country than in any other country in the world. That is why our products are in demand in the West.’” READ MORE

STARTUPS

Based in Seattle, a mental-health startup combines, philosophy, psychology, and ChatGPT: “Erick Rivas and Simona Trakiyska are the co-founders of Kaji, an app featuring a library of self-improvement and wellness audio recordings, enhanced by a chatbot that personalizes content recommendations based on user preferences and mood. Kaji’s goal is to help users in ‘scuba diving’ into their own thoughts, said Trakiyska, a former journalist and wellness-focused content strategist who co-founded Seattle Yoga News and has been practicing yoga and meditation for more than 30 years. Rivas is the co-founder and former CTO of Limeade, an employee experience software company based in the Seattle area that went public in 2019 via the Australian stock market.”

• “Rivas said the startup sets itself apart from existing meditation apps like Calm, Headspace, and Meditopia through its AI-driven recommendation tool. When users talk to the chatbot, they complete a brief behavioral assessment.”

• “The app’s machine learning and AI then uses that information to create personalized audio playlists, covering topics such as grief, wisdom, loneliness, relationships, motivation, leadership, and more.”

• “The app is free to start, with a subscription-based tier costing $7.99 per month and $69.99 annually. Rivas said the startup is also rolling out an enterprise option for employers to offer as a workplace benefit.” READ MORE

THE 21 HATS PODCAST

I’ve Never Had to Lay Off Anyone Before: This week, in episode 169, Sarah Segal tells Shawn Busse that the other shoe has dropped. A couple of months ago, as she’s shared here previously, Sarah lost two big clients in one week. Now she takes us through her decision to lay off three of her employees, including what it means for the business and what it means for Sarah’s own role in the business. Before the layoffs, she had gotten to the point where she was working on the business—but now that’s changed. “I'm not working on the business,” she says. “I am working for clients. I am getting the job done. I am making sure that we're successful with our clients, and that is my priority right now.”

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren