56,282 American businesses filed for bankruptcy in 2010, which is bad news when you consider that only 28,322 filed for bankruptcy in 2007. It represents an almost-100% jump! However, there may be a silver lining as well – the number of businesses that filed for bankruptcy in 2009 was higher at 60,837, and so in that sense, maybe we can assume that the business bankruptcy-filing peak has been reached and things may get better from here on. Statistics are understandably not available for 2011 as yet, and the statistics above can be misleading.
These statistics may not accurately tell us how 2011 and 2012 will pan out because the recession continues to scythe through the economy and the recent news that Greece, Portugal, Spain, and Italy are sitting under a mountain of debt may put American exporters and businesses that have business interests in these countries under severe stress. American exporters to the Eurozone are now at grave risk.
It’s possible that business bankruptcy statistics can see sharp upward spikes if the economy continues to wobble. SBA (Small Business Administration) has analyzed bankruptcy statistics and it reports that seven businesses out of ten survive for two years and 51% survive for a minimum of 5 years. This is a better statistic than the earlier days when more than 90% of American businesses failed within 5 years of incorporation.
Businesses fail for a variety of reasons, which can be any one, or a combination of the following:
1. Some folks start their business without performing adequate market research. They have an idea and they feel it’ll work, and they put their money on the line. This is a leading cause of business failure.
2. They may not be able to manage the business efficiently. Poor management can be because of lack of skills, ego, inadequate education, poor people management, poor business skills, financial mismanagement, and more. Every business needs a leader that can take it forward and poor leadership often results in failure.
3. Many people rely on loans instead of capital. Paying interest can kill profits, and especially so, when the market is in a downturn. It is debt that is the leading case of all bankruptcies.
4. When the market refuses to accept a product and the business owner is overwhelmed by the competition, then such a situation can lead to bankruptcy. Obsolete technology could play a role too. Today, ecommerce is catching up as brick and mortar businesses suffer. Every online retailer therefore must latch on to current trends and establish an online presence or be prepared to bite the dust.
5. Location is important. Business men who run physical stores must ensure that their location is attractive and easily accessible. If not, customers will stay away, and so will sales.
These were the main causes of business failure. As the economy limps along, businesses will continue to face challenging situations. It is the responsibility of every business to pick itself up and get back into the black instead of adding to business bankruptcy statistics. When a business fails, it can file for bankruptcy protection under Chapter 7, 11, or 13 (in the case of a sole proprietorship).
Related Business Bankruptcy Articles: