Main Causes of Business Bankruptcy – and How to Deal with Them
There are a few main factors that can cause a business to file bankruptcy. A business can go bankrupt because of financial mismanagement. There are also cases when this happens due to circumstances beyond the business owner’s control. The main causes of a business bankruptcy can be:
External causes- Economic conditions (market fluctuations, major client loss, a rise in competition)
- Financial conditions (problems in finding financing, high costs, currency devaluation)
- Legal conditions (tax law changes, state, federal or local law changes)
- Infrastructure conditions (changes which can affect negatively your business)
- Political conditions (government politics changes)
- Weather conditions (natural catastrophes, disasters)
- Work-related accidents that lead to lawsuits, insurance problems, bureaucratic difficulties and others.
Internal causes- Improper business location
- Weak management and lack of a good business plan leading to monetary problems (cash flow difficulties, high debts)
- Lack of proper accounting
- Staff problems (losing key employees)
- Personal problems (accidents, illness, divorce)
You can't control the external causes - focus on the internal onesMany of the external causes are unforeseen and can be unexpected. Especially when it comes about the external causes, a business owner can*t do much to avoid them. It is essential to focus on the internal causes that might lead to business bankruptcy and analyze each one of them attentively. Most of the times you do not have any control over the external causes, but you have control over the internal causes. Ask for professional help and take the right measures to resolve the problems. Most of the people who are coming to my office for legal advice and help made the mistake not paying attention to the early signs of financial distress.
Awareness and creativity can have a key role in avoiding business bankruptcy. As a business owner, you need to be aware of the risks, pay attention to the signs, solve the problems in time without delaying and find creative ways to keep your business working. A business with good and creative management can survive and keep running even when major external difficulties occur.
Whether the financial difficulties occur, due to inefficient business strategies or due to different external causes, a business owner has three options:
- Find a way to secure more financing for his business
- Default on his loans
- Filing for business bankruptcy
You can't afford more mistakes - ask the help of a professionalMost business owners consider the third option the easiest way to deal with a difficult business situation, but this option can affect the financial future and the credibility of the business owner in a negative way. It is essential to try to overcome the financial difficulties that often occur and continue to run the business until it turns profitable again.
If this not happens, there is only one option left- to file bankruptcy, to close the business and pay the debts. When you decided to file bankruptcy, ask the help of a professional bankruptcy lawyer with a good reputation to help you to go through this difficult period as easy and as fast as it can happen, saving precious time and money.