Bankruptcy is one of if not the worst thing that could happen to a business. Not only that it closes the entire company, but also, it affects all the involved individuals and parties. However, while bankruptcy is a common term, many still aren’t aware of the primary reasons that can provoke it. If that’s your case, please read on as we discuss what causes businesses to go bankrupt.
Causes Why Businesses Go Bankrupt
If a company can’t maintain a positive cash flow and generate enough revenue, it could negatively affect its financial stability. Also, for startups and small businesses, not receiving enough or, worse, any funding from VCs or investors can lead to failure, thus bankruptcy.
Unwise Corporate Decisions
As a business is about management, making bad decisions and unwise strategies can lead to bankruptcy. It could be a pivot to new marketing methods, manufacturing processes, or focus for a particular goal. Whatever it may be, every decision counts and can affect its stability and position in the market.
Since the market is volatile, it’s uncertain what product will boom next, what company will rise, and what type of business will hit a snag. Accordingly, new competitions, failure to adapt to the market, and sudden economic changes can potentially make a business close.
If a company can’t manage its tax correctly, it could highly affect its financial position. As such, tax filed earlier can cost more, while filing late can incur additional fees and penalties. Lastly, due taxes in the past months can add up and touch the financial reserve.
Accidents like fire, theft, storms and other external causes can, unfortunately, lead a business to go bankrupt. When an accident destroys the office, damages tangible assets, and renders essential tools and machines useless, it can take time for a company to recover. While some can survive with insurance or investor’s help, many will still choose or cannot take action to avoid bankruptcy.
Bankruptcy can happen due to financial issues, market instability, tax irresponsibility, ineffective strategies, and unwanted accidents. While many businesses gave up, others also strived to stay afloat. With careful planning, good market strategy, punctuality, and considerations for the future, a company can succeed and have enough resources to avoid bankruptcy.