No small business owner wants to declare bankruptcy. In fact, for most small businesses bankruptcy equates to business failure, and no one goes into business looking to fail. Sometimes it helps to know the causes of failure in order to avoid it. Here are the common causes of bankruptcy.
External Factors
Rise in competition. Sometimes a dramatic increase in competition can lead to bankruptcy. Be on the lookout for this problem and take action to mitigate it as quickly as possible. Do you need to change your fees? Would adding new services make you more competitive? Should you change your marketing approach? Once you pinpoint the specific problem, you can devise a solution.Rise in business costs. Inflation, rent increases, and a general rise in business costs can put some business owners in a bind. Once you recognize this problem you make changes in the way you manage your money in order to mitigate this problem.
Internal Factors
Poor management. Sometimes poor management choices can drive a business to bankruptcy. You need to take an objective look at your own management style in order to determine whether or not this problem is dooming your business. Sometimes talking with a business consultant will help you get that unbiased perspective you need. In order to fix this problem you must be willing to take constructive criticism to heart and make changes that may be uncomfortable for you at first.Financial Problems. You are probably aware of this problem more than most, because accountants and bookkeepers know that poor financial management is one of the greatest causes of business failure. Hopefully this isn’t a problem you’ll ever encounter, but if it is we hope you catch it early and resolve it early.Personal Struggles. Divorce and death are difficult personal struggles that can interfere with business management. There’s really no set solution to managing such difficult personal issues and your business simultaneously except to decide you want to save your business amidst the struggles and devote the time necessary to see it succeed. And be sure you also take time for yourself in order to process the difficulties in a healthy manner.
Conflicts with Other Entities
Dispute with creditors. When you accumulate excessive debt, you’re in danger of having creditors take legal action that could put your business in jeopardy. The best time to resolve this problem is before your claim goes to collections. In reality, this was an internal problem that was mismanaged; it should have been resolved before it became a dispute. Take immediate action to resolve this problem before it gains too much momentum.Unresolved tax issues. Filing taxes for a small business is much more complicated than an individual return. If you’re not confident that you can file an error-free return then have a respected professional tax preparer file for you. And if you owe taxes or have penalties that need to be paid, either pay them in full or apply for a payment plan with the IRS. Ignoring unresolved tax issues will only cause more trouble in the end.
Better Manage Your Clients’ and Your Own Finances with QuickBooks
Many of the problems leading to bankruptcy have to do with poor financial management. There are many ways you can improve your own method for managing finances along with that of your clients. QuickBooks is the accounting software used by the majority of small business owners. Mastering QuickBooks can help you better track your own finances and become a key consultant with many of the small business owners for which you work. This will enable you to expand your services and get an edge on the competition. Don’t wait to secure your business standing. Order the Professional Bookkeeper’s Guide to QuickBooks today!
