Reasons Businesses May File for Bankruptcy

Dunlap Law Insights

Business owners often want to ensure their organization is successful in creating value and bringing in profits. However, there may be some cases where a business does not achieve those goals for an extended period, which can push it into bankruptcy.

While owners may hold some level of responsibility, there are several reasons why bankruptcy can occur.

Causes of Chapter 11

These are a number of factors that may contribute:

  • State of the market: If the overall economy or the business’s specific industry isn’t doing well, it could cause the organization to lose money. Poor market conditions often result in a lack of consumer confidence and spending, which can severely damage the bottom line.
  • Lender issues: In many cases, businesses need to take out loans to function, but if a store is struggling to bring in customers, a lender may be hesitant to grant owners more funds because they may not be able to pay them back as quickly.
  • Poor decisions: If the owners lack negotiation, leadership or planning skills, this could lead to financial problems for a business. If they don’t spend time researching consumer demands or examining a product’s profitability, it could hurt their overall success.
  • Lack of financial literacy: Not everyone who starts a business has experience or a background in finance. However, a lack of financial knowledge may cause money management issues.

Chapter 11 can be a learning experience

Filing for bankruptcy should not be taken lightly. However, it is a common occurrence for first-time business owners and can help them make better choices in their next venture.

For owners struggling with a business and looking at bankruptcy, an experienced business law attorney in Rochester can assist owners in understanding their rights and help them organize their debts and payments to creditors.