In recent years, business bankruptcies have been trending upward. For example, they went up by over 40% from March 2023 to April 2024. There are always bankruptcies every year, but such a stark jump in statistics is cause for concern.
Why are these bankruptcies happening? Although every case is unique, here are three common reasons:
1. Increasing costs
Inflation, tariffs and many other issues are pushing up the costs for a variety of businesses. For instance, restaurants may find that the ingredients and supplies they need have gone up in price, so they also have to increase the price of their meals to try to cover this additional cost. In some cases, the costs go up so much that the business model no longer works or customers refuse to come.
2. Increasing competition
Another issue for business bankruptcies is just when there’s more competition. Say that someone starts a neighborhood rock climbing gym with a few hundred members. It may be a thriving business until a larger corporate gym moves into the area, and many members jump to that facility. When there’s too much competition for a certain geographical area, some businesses may be pushed out.
3. Pivots and changes
Finally, some businesses try to pivot and change into a different business model. For instance, a company may begin offering online or remote services. But these pivots don’t always work out as well as planned and could lead to a catastrophic loss of revenue, along with increasing costs to develop those services.
If your business is facing overwhelming debt, be sure you know what legal options you have, which may include filing for bankruptcy.