What are the Causes of Corporate Bankruptcy?

Many wonder what the odds are of their business going bankrupt. It is impossible to gauge the odds of a business going bankrupt, but there are aggravating factors that seriously indicate its potential.

This page will tell you what the causes of bankruptcy are, how to avoid them, and what the process of bankruptcy is for your business.

The Possible Causes of Bankruptcy

  • Debts

The causes of corporate bankruptcy are many. For a business, the main cause of bankruptcy is unpaid debt. Many businesses rely on loans to get them started, but if your business is performing poorly, it can be impossible to pay back these loans and this often results in bankruptcy. Borrowing money is many businesses’ downfall. It is not always easy to build a business from the ground up and borrowing money can often be unavoidable. Debts can quickly spiral and grow out of control, interest can be added, and you can find yourself suddenly weighed down by insurmountable debt. The professionals from say that bankruptcy is the quickest method of ridding your business of debt. Unfortunately, though, the quickest is not always the easiest.

Bankruptcy is not something that should be taken lightly. Bankruptcy can hinder your quality of life for a long time, affect your credit score, and force your business into insolvency. You should avoid bankruptcy as best you can, and if you find yourself in a situation where it is unavoidable, deal with the situation as professionally and meticulously as possible.

It is important to add that there are other ways to fund your business outside of loans. Something that many new businesses have started using to their advantage is crowdfunding. Crowdfunding is a great solution and can help to start your business up, providing it is a unique and needed service. Check out crowdfunding instead of unsecured loans.

  • Poor Employee Retention

Losing important employees can contribute directly to your business’s decline. If your business relies heavily on a few important members of staff, or if a single member of staff carries your business for you, then your business can be very vulnerable if that member of staff leaves.

You should value your staff and nourish their creativity. You must ensure, however, that you never entirely depend on a single member of staff, as if they do leave your team, you will find yourself in a very bad situation. Insulate your business by setting up measures to prevent members of staff wanting to leave, and never weigh too heavily on a single member of staff.

  • Loss of a Customer

In some sectors, businesses rely heavily on a handful of customers. If you lose an important customer, this can be a direct contributing factor to your business insolvency. A loss of a customer can mean a loss of income and a loss of earnings. You should treat your customers as best you can to prevent them from becoming weary of you and going in search of better services. Protect your customers fiercely and treat them as well as you possibly can.

  • Competition

Another of the main contributing factors to bankruptcy is competition. Rivalry in your market can force you out of business and be the catalyst for your business filing for insolvency. To prevent being driven out by your competition, offer your service at competitive rates, and if necessary, undercut them. If a rival appears, you must go at them tooth and nail until you have won the battle, otherwise, you risk compromising your livelihood and they can force your business into insolvency. Prepare ahead of time and study your competition carefully. Ignoring your competition can be devastating.

The Bankruptcy Process

If you have been unable to prevent bankruptcy, then here is how you file for it. Business bankruptcy, or insolvency, is very similar to the personal bankruptcy process. It requires you to report to your local council and complete the initial bankruptcy paperwork. Following your completion of the paperwork, you will be required to pay a small fee toward the costs of the bankruptcy. This can be spread out or paid immediately but must be paid within the yearlong bankruptcy process. Once you have filed and paid, you should withdraw some money for you to live on, as bankruptcy will see your assets being frozen. Only withdraw a reasonable amount, as you may find yourself being questioned about this later when a bankruptcy professional goes through your assets and bank statements. The bankruptcy process lasts a year and marks your credit score for up to ten.

Now you know the causes of bankruptcy and how you can file for it. Bankruptcy should be avoided at all costs, and it must never be taken so lightly as it can change your life forever.

Written by nikola

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