Causes of Bankruptcy

 

A business can lead to bankruptcy due a number of factors that may be under the control of management or beyond management control. Most of the time a business goes bankrupt due to financial mismanagement of the cash and assets. Some external factors that may lead a business to bankruptcy are a rise in competition and rise in the general costs that involved in running a business properly. Other factors are internal factors such as poor management, inability to retain clients, weak credit management. Monetary problems that may lead to bankruptcy are sudden loss of capital, inability to draw new cash and capital in business, collection of bad debt and misbalancing of the cash flows. Taxes and interests may also play a vital role in business bankruptcy. Sudden accidents can also lead to bankruptcy such as law suits against the business, bureaucratic red tape issues or other natural disasters.

Whether the bankruptcy of a business is due to poor management or due to external circumstances the owner of the business has to face the consequences and he is left with only three options. The first option is to find out the ways of securing more finance to acquire financial stability in the business. The second that may be used is to default on loans and the third and the last option is to file for business bankruptcy. Filing for a business bankruptcy leaves a negative impact on business owner and it is difficult for the owner to attract investors in future.

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