Corporate bankruptcy rarely comes suddenly. Often times it is the result of a failure to pay attention to a number of risk factors. In order to avert impending bankruptcy, entrepreneurs should therefore always keep an eye on the most common reasons and take countermeasures if necessary.
Rarely is it just one factor that leads to bankruptcy. The combination of several reasons over a longer period of time often represents the obligatory drop that brings the barrel to overflowing.
The most common reasons for corporate bankruptcy
Because of this, it is worthwhile for every type of entrepreneur, whether experienced or just a beginner, to find out about the most common risk factors.
There are supposedly lucrative financing offers lurking around every corner. Founders with little equity in particular tend to take advantage of this quickly. An investment through borrowed capital can often contain hidden and high interest rates. If your own creditworthiness is rather low, the monthly expenses for z. B. The repayment of bank loans pose a heavy burden. Companies should therefore never lose sight of the exact figures and liquidity of their own company.
Investing in the wrong projects is also often a common cause of bankruptcy. Even if investments are often risky data, they are essential for the growth and development of the company. This makes it so difficult to make the right decisions, especially for inexperienced entrepreneurs.
In order to make as few mistakes as possible, it is essential to always get enough information and details about the project. Entrepreneurs should never make a gut decision about the amount and timing of an investment. Even if large-scale market research is not always feasible for small and medium-sized companies, these companies can at least carry out customer surveys and market analyzes in order to keep the investment risk as low as possible.
Another common reason for corporate bankruptcy is a lack of or inadequate strategic planning. In smaller companies in particular, there is often a lack of a responsible person who takes care of the planning and implementation of a corporate strategy and continuously discusses it with management. Long-term planning is often not only financially desirable, but also less risky overall. Especially short-term and ill-considered wrong decisions such as a sudden change of supplier can mean an undreamt-of additional effort, if this also results in the conversion of other company processes, for example.
Wrong leadership style
But the relationship between management level and workforce can also become a reason for corporate bankruptcy. Especially when the leadership style is extremely controlled or, on the contrary, too loose, this can lead to a less productive way of working of the employees, which in turn has a negative effect on the business.
However, since it is often difficult as a personnel manager to objectively assess one’s own management style, executives should orient themselves particularly towards the performance of their associated workforce. Only when everyone pulls together and has a positive relationship to one another can optimal work performance be achieved and the risk of corporate insolvency reduced.
Ultimately, the right communication also plays a decisive role in the success of the company. Especially with financial matters or strategic planning, information has to be exchanged regularly and transparently between the individual departments. Inadequate communication, on the other hand, can lead to misjudgments, which can have a significant impact on the company’s growth and competitiveness. So too many wrong decisions can ultimately lead to corporate bankruptcy.
Find out more about corporate insolvency on Projektify
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