Why businesses face bankruptcy: It’s often out of their hands

When a business declares bankruptcy, it is common for people to think that the business has failed in some sense. They talk about how the business model did not work or the products were not up to par with the competition or something else along these lines.

Certainly, some companies do go bankrupt for these reasons. But the truth is that it is often out of their hands.

For instance, we know well that a recession can cause a business to go bankrupt. This was most recently seen during the Great Recession that started when the housing bubble burst back around 2008. The economy suddenly and unexpectedly got much worse. This meant that consumers lost their jobs or didn’t have money to spend as they wished — or that they chose to save their money, rather than spending, knowing that they could lose their jobs.

In any case, a business model that looked viable a few months before suddenly may have stopped working. Without money coming in, a business could be forced to declare bankruptcy, even if the owners had not made a single mistake.

Another reason for bankruptcy is when a major competitor enters the arena. You often see this with small towns as they get bigger. A big-box store comes into the area and takes up all of the local business, leaving the smaller businesses on the brink of bankruptcy without the customers they had 10 years later. Sometimes, the large stores deliberately lower prices to get rid of the competition.

If your business runs into these types of financial issues in the future, be sure you know what steps to take. An experienced bankruptcy attorney can help you explore your options.