Some of the top reasons that businesses go bankrupt.
There are many reasons why businesses can fail, but there are three major causes of failure that happen the most often: financial issues, bad decision making by directors and market instability.
These three things contribute to why so many people lose their jobs each year when a company goes under.
Financial issues are rather self explanatory, but why do businesses bankrupt?
How does a business go from being profitable one year to going under the next? To understand what causes a company’s financial failure we have to look at why they fail. The first reason why companies become financially unstable is actually something that all of us deal with each day: debt.
Boardroom disputes can cause businesses to go under because the company’s directors cannot agree on how to deal with a financial crisis. If one director wants to declare bankruptcy and another is determined not too, then that could definitely cause tension in the boardroom.
Market instability can also contribute towards why companies fail financially. New products or technologies may come out which make what you are selling redundant; for example: Everyone was buying records when they were popular but as soon as CDs became available there wasn’t enough demand for record anymore so shops stopped stocking them and people who sold them went bankrupt!
Tax issues such as late payments add more pressure onto businesses already feeling like they cannot cope; this often leads to insolvency (company going into liquidation).
How to avoid bankruptcy when you are a startup in the UK or in America.
Businesses in the UK and businesses in the USA could fail due to several reasons, such as financial issues (bad decision making by directors), market instability (market changes, lack of demand) , tax issues (tax fraud), accidents (fires, floods or other natural disasters).
Here are some general tips for avoiding bankruptcy when you run your own business:
– hire good employees; why – they can help with tasks that would take a long time to do yourself; why – because if someone else is doing it instead of you then you have more free time which helps improve productivity and gives you a better work/life balance.
– think about diversifying your income sources so if one part fails another can keep you afloat; why – because if you have more than one source of income then you are less likely to go bankrupt if one fails;
– be careful with your spending and make sure you always have enough money to cover your costs; why – because if you spend more than you earn then you will quickly get into debt.
Some useful links: