Seven (7) Reasons Businesses Suffer Bankruptcy and Liquidation

Every single day, businesses declare bankruptcy and liquidation. The statistics ratio of businesses that close down to those that are open could be slim. As hard as it sounds, the truth is that there is more to starting a business than getting a storage space. Nobody plans to start a business today and get bankrupt tomorrow.

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Many business owners overlook the basic rule of business liquidity and this is caused by improper planning. Before we go into the reasons businesses suffer bankruptcy and liquidation, let us run a little background on these words.

Bankruptcy and liquidation sound like a business’ nightmare, however, several persons and companies go through this. So, cheer up, you’re not the only business and you can definitely come out of this. Just in case you are a business owner and you are worried about avoiding going into bankruptcy, here are a few reasons businesses suffer bankruptcy and Liquidation.

Having this information will help you stay away from bankruptcy. You could also try online business management courses as they might be of great help. Here are seven common reasons why business suffers bankruptcy and liquidation:

Bad Decision Making

This is one of the most popular causes of a business’ bankruptcy, many still go into businesses today with less or no planning at all. Bad decision making in business is the beginning of its downfall.

Loss of Key employees

Businesses are opened to make a profit and sometimes, from the start of the business, some companies might be blessed with some key employees who take care of the business like it’s theirs. Ensure you treat your employees properly, they’re the source of your profit. The loss of key staff is usually unfavorable to the business.

Unforeseen Circumstances

In every situation, certain things happen that we don’t plan for. Unforeseen circumstances could come up when you least expect it and it could cost you to make unplanned expenses. A comprehensive plan for contingencies is very important to the going concern of the organization.

Unhealthy competition

Some business owners engage in unhealthy competition with the big industry competitors. Retaliation strategies of the bigger companies may be too hazardous for the small business owners to handle

Excessive Expenditure

Startup businesses can be challenging financially. Some business directors are tempted to go a little over their budget and end up spending above their budget. Putting in so much money into the business could be a fatal mistake in the future.

Poor Market

The poor economic market is one of the most common causes of bankruptcy and liquidation of businesses.

For example, a business can close down if the business’s niche is no longer in demand. Say, for instance, a business deals with typewriters, in this age and time, such business might need to close up because people would rather go for computer systems and a typewriter.

Bad debt

Being unable to recover debts is a major issue that kills businesses very fast. Clients and customers don’t just owe, they are sometimes nowhere to be found which makes these debts turn into bad debts.