What factors can lead a business into bankruptcy?

On Behalf of | Nov 20, 2021 | Chapter 11 Bankruptcy |

Running a business in North Carolina can be a rewarding experience, but it’s important to be smart to keep your company afloat. Certain factors can increase the risk of business bankruptcy.

Financing issues

A major cause of business bankruptcy in North Carolina involves financing. A business needs a sufficient amount of money in order to survive. Some business owners turn to investors who put money into the business to help it grow and to have stake in the company. Companies may also turn to loans but not be able to secure enough funding to keep things going. If a business owner is able to take out additional loans, it could lead to debt problems if the company can’t make good profits.

Lack of planning

Planning is a major factor that can determine whether or not a business succeeds. If the business owner makes poor decisions during planning or doesn’t plan at all, it can result in bankruptcy. Not considering how to properly market a product or service to gain customers or clients can spell disaster. If the business ends up spending more money than it earns, bankruptcy could certainly be in its future.

Tax problems

Not understanding business taxes can lead a business into bankruptcy. There are different taxes for which a business is responsible compared with personal taxes. If the business owner doesn’t understand taxes they must pay or doesn’t have an accountant who is savvy in that area, it could lead to a slew of problems.

Market conditions

The economy can also play a part in whether a business thrives or ends up in bankruptcy. Depending on where the market lies, there may be less spending by consumers on the product or service, which can lead to lack of profit and cash flow issues. There might also be an issue due to a competitor getting more customers or clients.

Although you can’t control certain situations in the economy, bankruptcy isn’t your only option if your business encounters problems. Good planning from the outset can help you address financial issues.