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5 Common Reasons for Business Bankruptcies

Owning your own business is a demanding endeavor. It takes intelligence, perseverance and some luck as well. Just as there are many reasons for business success, there are reasons for difficulties in the pursuit of entrepreneurial gain. Here are five common reasons why a business may head toward bankruptcy.

1. Increase in Competition

If your business has been successful in the past, there is a good chance that a few years later, there is a crowd in your niche of the market. Sometimes, competitors’ defamatory tactics take a toll on the growth of other businesses in the same sector.

2. General Business Conditions

Management performance issues, demographic shifts and location problems can all slowly chip away at the viability of a company. Especially when combined with other issues, the poor fitness of a business can become a liability.

3. Lawsuits

Lawsuits have been the bane of many a business and can cover a wide variety of subjects. Anything from health code violations to liability litigation is fair game. In California, a notable and significant source of employer lawsuits are from employee class action initiatives. The sheer amount of resources that it takes to litigate or settle lawsuit claims may prove to be too much for some companies.

4. Regulation Changes

A shift in government regulation can have a negative impact on a small to medium businesses, and leave them vulnerable to instability. While some regulation changes can be positive for companies, all too often, the challenges brought on by new requirements can slash profit levels and increase operating costs.

5. Taxation Overload

If your tax structuring is off-kilter, your business will feel the effects. If your business has substantial tax debt, legal consultation and services can help you get your business free of a tax levy or lien.

While any of the reasons listed above can damage business operations, a few of these factors occurring in the same general timeframe can create a perfect storm that compromises the solvency of a company and may lead it toward bankruptcy.

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