New businesses are relatively fragile. Many of them don’t last. For instance, the Small Business Administration looked at the data and found that about 25% of new businesses close in the first 12 months. They don’t even make it through the first year.
On top of that, half of all new businesses close in just 24 months. Getting through the first year is helpful, but roughly the same amount of businesses are going to fail in the second year.
In some of these cases, the business closes because the owner ends up facing bankruptcy. The business may have to liquidate assets to pay off as much of the remaining debt as possible. So why do businesses go bankrupt and what can owners do to avoid it?
Issues with the target audience
In some cases, a business owner just doesn’t really understand their target audience. Maybe the prospective audience doesn’t have enough money for the goods and services, or maybe they’re simply not interested. The business could be in a poor location when it would have thrived somewhere else.
Issues with the market
Additionally, many businesses face bankruptcy just because of the consumer market in general. Say that there is an economic downturn and the economy slips into a recession. People have to adjust their budgets and cut out things they believe are not necessary. This isn’t the business owner’s fault, but it does cost them customers and sales.
Too much competition
Similarly, there may just be a lot of competition and many other businesses offering similar goods or services. It can be very hard for a new business to make any headway with the target audience if there are too many other options.
As you can see, bankruptcy often happens due to things – like a recession – that are outside of the business owner’s control. Those who find themselves in this position need to know what legal options they have.