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3 reasons businesses file for bankruptcy

On Behalf of | Nov 9, 2023 | BANKRUPTCY LAW - Chapter 11

Every business owner hopes to achieve some financial stability by doing something they enjoy. Running a business isn’t easy and owners may become overwhelmed by financial obligations. Owners may need to file for bankruptcy if they are not profitable.

There are many reasons why a business owner may need to file for bankruptcy, but here are two of the most common:

1. Low revenue 

One of the biggest problems businesses face is cash flow. When a business doesn’t earn enough money, then it can’t maintain operations. This can happen in a few ways. For example, shifts in market conditions could suddenly cause less interest in a company’s products or services and the company can’t manage to shift with the times. Or, a company may try to seize and opportunity to expand, only to find out that they self-cannibalized because there wasn’t a big enough market.

2. Limited marketing

While income issues are often the biggest causes of bankruptcy, money troubles can often stem from other issues. For instance, any successful business has a marketing plan. Marketing allows a business to reach out to consumers who may be interested in what a business has to offer. If there isn’t enough marketing, then a business won’t get enough paying customers. 

3. Not diversifying enough

Another issue businesses face is providing a service or product that is too niche. In other words, there is a small consumer market that the business is marketing toward. If the product or service does not attract a larger audience, then the business can’t make an income.

Bankruptcy doesn’t mean that a business has failed. Businesses can file for bankruptcy to get a fresh start. Filing for bankruptcy can be difficult, but business owners who understand their legal options may have a better experience during the process.