5 reasons a business may face bankruptcy

When your start-up opened its doors, you felt like you had a terrific product. You felt sure the company would thrive.

Fast forward three years, and you are heading toward bankruptcy. You don’t understand it. You still feel like you have a great product. It just never caught on. You’ve been trying to sell off some assets to make ends meet, but you know you can’t last this way.

How did you get here? Below are five reasons that companies sometimes fail and face bankruptcy:

  1. That idea isn’t the next big thing. You’re so close to it. It’s your brainchild. You love it. That doesn’t always mean it solves a problem or speaks to consumers. The simple fact is that it’s never going to take off the way that you planned.
  2. It’s an outdated idea. This is a common issue in the tech industry. Everything moves so fast. You spent months coming up with an app, but, by the time you launched, it was outdated. Replacements in technology meant most people didn’t need it or couldn’t use it. Failure to evolve can sink your company.
  3. The market got saturated. Your idea is great, but you’re not the only one to have it. Consumers already have more options than they need. You’re throwing yours out there, and you know people would love it if they found it, but the reality is that they already have something just like it, so they’re not looking. They’ll never find you.
  4. Bigger companies offer unbeatable competition. What you’re doing with $2 million, someone else is doing with $500 million. You just can’t compete with a giant company that has far more money to throw at the same problem. Plus, because they’re selling so many more units than you, they can offer lower prices. Consumers almost always go after lower prices.
  5. You face more barriers to entry than you anticipated. Maybe you had to do a lot of legal paperwork you never planned for. Perhaps you had to change your products so that they’d pass all necessary tests. Maybe it just cost more to get off the ground than you thought, so you were well behind by the time you got those doors open.

Some of this is very hard to predict in advance. Some of it is just bad luck — you come out with your product just a week before a massive company puts out their own version, instantly saturating a market that was wide open when you had the idea.

No matter why your company is struggling, you may get to the point that bankruptcy is the only realistic option. If this happens, make sure you know all of the legal steps to take.

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