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Why businesses go bankrupt


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Why Businesses Go Bankrupt


Bankruptcy is the state where a company or business is no longer able to pay for its debts and liabilities of the company or business are greater in value than its assets. There are various reasons that lead a business to go bankrupt.  Causes of bankruptcy in a business can range from mismanagement of business finance to conditions that are beyond the control of the business owner (Kilpi, 2002). 

Causes of business going bankrupt

Competition can force owners of businesses to incur huge costs stay in business, which can lead to huge liability cost greater than the assets of the business. According to Barrickman (1979) many businesses go bankrupt because of various internal conditions of doing business like improper location of a business, poor business management, loss of customers, and increasing credit problems. Monetary problems in a business have a potential to make a business to go bankrupt. Inability of a business owner to find capital or loss of capital, high debts and problems from flow of business finances are examples of severe monetary problems that can make a business to go bankrupt.  An accident in a business is a crucial factor that may make a business to go bankrupt. Although a lot of business owners cover their business with different insurance companies, these insurance delays or sometimes prevent business owners get their insurance money that may cause a business go bankrupt (Schollander & Schollander, 2008).


In order to avoid their businesses from going bankrupt, Ekvall and Smiley (2007) propose that business owners should identify a secure source of finance, defaulting on business loans, and filing a business bankruptcy.


Barrickman, R. E. (1979). Business failures: Causes, remedies, and cures. Washington: University Press of America.

Ekvall, L. L. W., & Smiley, E. D. (2007). Bankruptcy for businesses: The benefits, pitfalls, and alternatives : steps to take to avoid bankruptcy, non-bankruptcy alternatives, and the new bankruptcy code for a business. Irvine, CA: Entrepreneur Press.

Kilpi, J. (2002). The ethics of bankruptcy. London: Routledge.

Schollander, W., & Schollander, W. (2008). Bankruptcy for small business. Naperville, Ill: Sphinx Pub.