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3 Reasons For A Business To Go Bankrupt

Business Bankruptcy is more common nowadays due to the ever-changing economic statuses worldwide. Every year, big and small businesses file for bankruptcy for several reasons. In each of the years from 2016 through 2020, more than 22,000 firms declared bankruptcy, according to statistics from the U.S. Courts. This figure does not include the number of small enterprises that simply shut their doors and leave their failing operations.

Some of the reasons are listed below.

Ten Top Reasons for Bankruptcy

The top ten reasons for bankruptcy are:

1. Credit Card Debt

Credit card debt is one of the main reasons a business goes bankrupt. It is when a business is spending over the limit of the credit cards and cannot pay back to the bank.

2. Large Expenses

The unexpectedly large expenses adversely affect the bank account. Due to this, the business cannot pay off other costs, leading to bankruptcy.

3. Finance Deficit

Small businesses often have to take loans from banks and other financiers to start the business. If not promising to surge high in the market, the business can lead to a loss in its financers. Thus, causing it to go bankrupt.

4. Collateral Damage

Small businesses often use their personal properties as collateral to receive loans from financiers. The non-payment of the loans leads to the acquisition of personal properties.

5. Key Employees

Hardworking and talented employees are the main asset of any business. With them, the business will flourish.

6. Lack of Business Planning

A business plan is most important when starting a business. Non-research of the market or its consumers can cause great damage to the business’s finances. Thus, causing it to go bankrupt.

7. Accumulated bills

With the need for more inflow of finances, bills get accumulate. Non-payment of bills leads to bankruptcy of businesses.

8. Personal issues

Due to the personal issues of the owner, a business can undergo bankruptcy. This is mainly due to illness or divorce.

9. Market Crash

The drop in the state’s economy and the market where the business operates are major reasons for a business to go bankrupt.

10.  Unforeseen Disasters

Businesses can easily go bankrupt when they cannot cope with unforeseen disasters. These disasters may include natural disasters, criminal activities as well as pandemics. In recent times, Covid -19 was an unforeseen disaster that has bankrupted many businesses.


Getting Help to Avoid Bankruptcy

Bankruptcy is a dangerous situation for any business to be in. It has adverse effects on the owners of the business and those financing it. All the reasons explained above will give the idea that debt on its own will never disappear. Certain steps must be taken to avoid bankruptcy.

Entrepreneurs must be thorough in the market and consumer research when going into business. A list of financers should be available for the startup. A great deal of thought must be put into the planning and survival of the business. It should be understood that with the inflow of cash, planning, and budgeting must be done to avoid bankruptcy.

If you need professional financial guidance and support, consider contacting us at Nidhi Jain, one of the best Bay Area and San Jose CPAs. Our team is one of the best Indian CPA companies in the U.S. With our expertise and experience we can help you navigate the complexities of financial management and ensure your business stays on the path to success. Contact us today to learn more about how we can help you succeed as a business owner in the Bay Area and beyond.