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Early Signs of Bankruptcy, You Might Be Missing

26 June 2019 No Comment

Have you ever wondered how bankruptcy tears down a person’s life, cutting off all the hard-earned assets due to neglected signs of a striking famine, such as ‘bankruptcy’? Here are some of the essential signs that you want to watch out from when dealing with your financial assets/savings and avoiding possible bankruptcy in the future.

According to Don B. Bradley, III, and Chris Cowdery, researchers from the University of Arkansas, in their paper,  Small Business: Causes of Bankruptcy (link: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.367.4484&rep=rep1&type=pdf, they identified fourteen (14) specific causes or signs of bankruptcy, categorically clustered into Marketing, Management, and Financial. Regardless of theses categories, let us dwell on only five (5) symbols among the 14, which can be easily cited.

  1. Unrealistic Expectations

Starting your business or ‘money-growing-dreams’ from the ‘end goal’ without checking the start-and-process is a big no-no. Many assume this fact from day one. Many tend to underestimate the casualties or percentage of reinvestment required for a business to continue. According to research, new businesses require to acquire a year or more before it becomes profitable. Finally, an entrepreneur/business owner should know that owning a business means allotting more of your time in the business to keep it flourishing and not to have more free time and keeping yourself hands-off from doing all the nitty-gritty of the budding business/investment.

  1. Personal Issues

One can never avoid a bunch of whirlwind experiences in any endeavor, especially in businesses or investment activities. Most likely, this whirlwind never misses having a personal ordeal among its people/members. It is said that one out of six so-called business bankruptcies is initiated because of a personal problem of the business owner” (Sullivan, Warren & Westbrook, (1998). Divorce and illness are the most common issues involved, in such cases. Another legitimate source supports this fact saying that personal bankruptcy was also filed by more than one (1) in ten (10) of the business bankruptcies surveyed, under the paper entitled Financial Difficulties of Small Business and Reasons for Their Failure.

  1. Under Capitalization

A lot of people would think or assume that banks or institutions will provide a loan for 100 percent (100%) of start-up costs based on a good idea or with no other motives. On the contrary, this financing usually makes businesses or investments at its downside and often leads to its failures. As an aspirin entrepreneur or business person must always be equipped with a percentage of the loan being requested, a good credit score, and means to pay back the loan. Most or all banks releasing such loans often are tight with the amount they want to loan for small businesses or debtors. Mostly they only provide the minimum.

In some cases, this is due to the entrepreneur or debtor’s misunderstanding about the money required for establishing such business or investment and the time to realize as such as profitable. For most of these debtors, they tend to have these unforeseen issues or problems when starting up, wherein it takes two (2) to three (3) times of the capital’s amount to reach its profitability. Usually, the lack of start-up capital causes shortcomings before the business reaches profitability. Worse, when it reaches the second or third time in raising capital, and yet it showed weak projections of the business, it is impossible to regain itself back-up and repay the capital which was lost instead of doubled.

  1. Natural Disaster

A very uncommon sign that may lead to bankruptcy, but Natural disasters can play a role in small business failures and worse, bankruptcies. Disaster can be classified as naturally occurring in the environment, including death. Since the vast majority of small businesses are sole proprietorships, the death of an individual would require the company to be extinguished. Other disasters included in the two hundred and thirteen (213) accidents are fire, irreparable damage to a critical facility, destruction of essential equipment, or death of a key employee. Another would be the logistical changes such as the introduction of a new bypass can also be considered a natural disaster.

And for the final sign, we will be discussing here,

  1. Poor Cash Flow

The most significant failure indicator of business would be poor cash flow. Lack of cash flow could cause a tremendous fall on business wage payments, rent, and insurance and loan payments. Such a situation can inhibit the company or business ability to reinvest for future profits like ordering products or supplies and marketing execution. A lender sees a company borrowing to pay off its past debts as a sign of big disaster, which is the reason why borrower fails to acquire as such. Statistics of research shows that companies that don’t enter a state of profitability within eighteen (18) months are at a high risk of bankruptcy (Hale, 2004). This is critical for budding businesses since new threats are all around every day as a whirlwind in a steady flow of business.

Hence, if you want to check out more of these early signs of bankruptcy, you may visit the link cited above, or learn about it more from a trusted and dignified lawyer of Irvine Bankruptcy Law Firm around 17875 Von Karman Avenue, Irvine California, 92614 Suite 150 & 250. If you cannot reach them by driving to their firm, you may contact them through their website: https://kt-bankruptcylawyer.com/locations/irvine-bankruptcy-lawyer/.

All the best to all of the entrepreneurs and business owners who are emerging in their fields, and take note, watch out through these signs of bankruptcy.

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