Adam Law Group Blog

Reasons Small Businesses Declare Bankruptcy

Toys R Us shocked millions of Americans by declaring bankruptcy and announcing that their locations in the United States would be closed. Some stores closed their doors immediately following the shocking announcement while others plan to close over the next two months.  Shoppers lining up to take advantage of store closing sales received an additional unpleasant surprise in the form of tangible evidence of another store’s, Claire’s, imminent closing. Entire sections of Claire’s products normally sold within Toys R Us were roped off with signs stating that the products could not be sold. The bankruptcy filing and closing of hundreds of stores nationwide has led to numerous discussions among smaller companies regarding the reasons small businesses declare bankruptcy.

Poor Local Economy

The condition of the overall economy plays a crucial role in the success or failure of any small business. Small businesses that serve a certain niche can quickly experience a decline when their local economy experiences a recession or financial lull. The closing of a large local employer, loss or reduction in certain types of benefits, or other declines reduce the amount of disposable income local customers have. A small business that depends on sales made to local customers may find themselves considering bankruptcy if their sales decrease in response to a poor local economy or change in spending habits among their niche client base.

Bad Management

A business with loyal customers, an expanding niche, and good employees must also have professional management if they are going to succeed. Without good management, your business may fall victim to the consequences of bad decision making. The people managing a small business are ultimately responsible for reaching out to customers if there is a problem, avoiding complaints, and ensuring that your business remains profitable. A bad management team can lead to your business hemorrhaging money, losing customer goodwill, and ending up in bankruptcy court without a clear understanding of how the business ended up filing for bankruptcy relief.

Financing Issues

Money is probably the primary reason a business of any size can find itself in bankruptcy court reorganizing or preparing to close its doors. Small businesses in particular are at risk of suffering because of financial difficulties. The average small business must take on loans or open lines of credit in order to finance daily operations. When the business begins experiencing financial issues, creditors may be unwilling to extend further lines of credit, and paying back debt that was already taken on becomes increasingly difficult. A company can find itself drowning in debt with no one willing to extend additional credit or negotiate existing repayment terms.

Talk to an Attorney

Filing for bankruptcy is something that no business wants, but there are times when there are no other options available to a small business owner. Discussing your options with a bankruptcy attorney will help you make the decision that is best for your unique circumstances and your organization. The team at the Adam Law Group is here to answer your questions and help you decide what options are best for your business. Contact us today to schedule an initial consultation at our Jacksonville, Florida location so that we can begin providing you with the legal advice you need.