Many things can lead to bankruptcy for a small business, from the introduction of new competition in the same space to a general downturn in the market because of outside influences. For instance, tourism-related businesses took a hit during the recession, not because they did not offer good products, but because other people did not have enough money to be tourists.
One simple thing that could lead to bankruptcy, though, is just underestimating exactly what work needs to be done and how long it will take. If there isn’t any income during this time, the company can run out of capital.
For instance, one man tried to turn his small media company into a software company. He thought he could do it far faster than he actually could. They set an “out of cash” date and budgeted with the money they had. However, that deadline swept toward them as the work dragged on. They got down to just $11,000 and the founder was worried that he wasn’t going to be able to pay his employees, forcing him into bankruptcy.
He was able to avoid it through hard work and a focus on sales, but it is clear that one simple mistake — not budgeting enough time — can be crippling. The man had a good idea, good products and good workers. He just did not have enough time during the transition without that constant income, and it almost cost him his company.
When business owners find themselves in this position, it is very important that they understand what bankruptcy options they have and how the process works.