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Top Causes of Corporate Bankruptcy

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Bankruptcy is one word every business owner fears. A business can fall into financial hardship for many reasons, whether it’s because of external factors outside of their control, or due to internal issues with operations. 

If you’re unable to keep up on your debt obligations, you may need to make the difficult decision to file for bankruptcy. Let’s review the top reasons for business insolvency and how our Licensed Insolvency Trustee can help you.

Global Circumstances

Global situations like COVID-19 have wreaked havoc on our economy as many businesses struggle to adapt their operations to accommodate lockdown restrictions. 1 in 6, or 181,000, small business owners (including sole proprietorships, partnerships and corporations) in Canada are considering closing their businesses for good because of the impacts of the global pandemic. While some sectors have been able to work around the restrictions, others have had no choice but to close their doors until they can be fully operational again.

Market Demand

Technology is rapidly changing and creates new challenges to meet customer demands. Some businesses struggle when their products are no longer in demand, as we saw when video stores lost out to online streaming subscription services. 

Other businesses experience a loss of revenue due to competitors in their industry. While competition is a good indicator that a business’ products or services are in demand, it brings pressure to stay competitive. Businesses that ignore their competitors do themselves a disservice. They miss out on the opportunity to market their unique offerings and can lose their customers to the competition.

Business Planning

Without a solid business plan, businesses put themselves at a greater risk of filing for bankruptcy. For example, businesses may fall short in their staff management processes. They may not be able to foresee issues with payroll until it’s too late, or they may lose employees because they did not plan for employee retention and the added costs of training new employees.

Cash Management

Some business owners assume that, when business is growing, these earnings will remain stable from month to month. Our Licensed Insolvency Trustee has worked with clients who filed for bankruptcy because of issues with their cash flow. In many cases, these clients did not keep a sufficient cash reserve to cover expenses such as rent, inventory, taxes and staffing. 

We recommend a good cash management system to support business operations for the long term. This means having a comprehensive system for tracking expenses that allows the business to handle slower periods without facing corporate insolvency.

If you are experiencing a similar debt issue, Crawford, Smith and Swallow Inc. is here to assist you through your business’ financial troubles. Our Licensed Insolvency Trustee will review the current state of your business and will help you determine the best course of action to relieve your debt.

Contact us to learn more about how you can prevent corporate insolvency.

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