What are the causes of business bankruptcy?

When businesses are not profitable for extended periods of time or face challenging market conditions, owners may be forced to go into bankruptcy or carry out a restructure strategy. Even if it seems like your business is doing well, it’s important to know what the biggest causes of business bankruptcy are and be prepared for the worst as things can change in the blink of an eye.

Cash flow problems

The lack of cash flow is often the biggest failure indicator for businesses as it could cause the business to fall behind on payroll, rent and loan payments, as well as limit its ability to respond to outside threats (economic, natural, health, and political risks). As the saying goes “Cash is King” so ensure you keep enough cash aside to cover essential and any unexpected costs.

Over-reliance on one or two key clients

There are some businesses that rely on just one or two clients for almost half of their income. If that’s the case with your business too, you are in trouble. You might not be right now, but you will be if that client decides to stop using your services or switch to one of your competitors. Having multiple clients and alternative sources of income will ensure that you can generate enough revenue to survive and thrive.

Unstable market conditions

Challenging conditions – an economic recession, rise in competition, or a health crisis like the Covid-19 pandemic which had a profound and wide-ranging economic impact –  are common causes of bankruptcy. Even if your business is doing well, it’s important to understand that bankruptcy is always a possibility, and taking steps to protect your business against it, for example by being prepared to implement a turnaround strategy or restructure your business, is a great idea. As they say, let’s hope for the best, but prepare for the worst.

Lack of planning or poor decision making

Lack of financial planning, making poor judgments, and being unable to predict future outcomes or risks sound like a recipe for disaster. Of course, no business is immune to making mistakes, but you should have a good understanding of where your business is heading in the future and be fully prepared and equipped to tackle any problem coming your way.

Taking steps to avoid filing for bankruptcy will ensure your business has a future. If your business is facing financial difficulties, we are always on hand for immediate and confidential advice. Reach out to us on +357 7000 8812 or info@predeevo.com

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