The current economic landscape has put significant strain on the world’s economies, and small businesses have been among those hit the hardest.
In the year 2022, 13,125 business bankruptcies were reported, representing a worrying trend for small business owners everywhere.
This article looks at some of the reasons behind these bankruptcies and what business can do to stay afloat in such troubled times.
Small Business Bankruptcies Statistics
- In the year 2022, 13,125 business bankruptcies are reported.
- 16,140 business bankruptcies were reported in the fiscal year 2021.
- 391 corporations filed for bankruptcy in 2022.
How many small business bankruptcies were filed in 2022?
According to the US Courts Filing Statistics Center, 13,125 business bankruptcies were filed in the 2022 fiscal year. This number is a stark reminder of the fragility of small businesses, which are particularly vulnerable during economic upheavals.
These numbers demonstrate that even in good times, circumstances can rapidly spiral out of control and threaten a small business’ long-term solvency.
It serves as a warning to all businesses to make prudent financial decisions and remain prepared for all possible contingencies.
Corporate Bankruptcies By Year
According to Marketwatch, corporate bankruptcies were significantly above the average in the year 2022 with 391 corporations filing for bankruptcy.
This trend appears of concerning magnitude and may signal a looming economic crisis. It’s uncertain exactly why corporate bankruptcies have increased so much; potential explanations range from irresponsible business practices to a lack of consumer demand.
Regardless of the cause of this jump in bankruptcy filings, businesses can take various measures now to protect themselves going forward. Prudent budgeting, greater oversight, and risk assessment strategies are just a few ways companies can ensure that they remain solvent during turbulent economic times.
Types Of Bankruptcies For Businesses
There are two main types of bankruptcy available for companies having trouble making their debt payments, according to Investopedia.
The first is Chapter 7 bankruptcy which involves liquidation of the company’s assets. Under this type of bankruptcy, a trustee will be appointed to oversee the sale of the business’s assets and distribute the money to creditors.
The other option is Chapter 11 bankruptcy which allows the company to continue operating while developing a reorganization plan that is approved by a court. This type of bankruptcy requires more negotiation but is often seen as a better way for businesses to recover from debt issues.
Most Common Reason For Business Bankruptcies
1.Trouble Finding Financing
For small businesses, access to capital is often an issue according to Charles Huber, a bankruptcy attorney.
Business owners may take out loans to help fund their operations. Unfortunately, this route can cause more harm than good when things don’t go according to plan. When a business struggles, lenders may not be willing to grant additional funding which could eventually lead to bankruptcy.
High debt also makes it harder for companies to be profitable as they have to use their operating income to pay back interest on the loans taken out.
2.No Customer Knowledge
According to BusinessTown, not knowing who your customers are can be one of the biggest reasons for business bankruptcy.
It’s like a car salesman not having any knowledge about who they are trying to sell their cars to without understanding their preferences. In order to prevent this, research should be conducted prior to any sales attempt.
Conducting market research, studying Facebook and Google statistics, conducting surveys, and even personal interviews are all ways in which businesses can gain knowledge about their target customers.
Additionally, businesses must pay attention not to become overly dependent on specific customers that account for the majority of their sales; if these clients stop buying from you because of any reason, you may find yourself in a difficult financial situation.
3.Increase in Competition
Even if you are winning in your industry, according to statistics from Weintraub & Selth on business bankruptcies, increasing competition can be a key factor that causes bankruptcy. Sometimes the pressure from other players in the market, who use unethical and defamatory tactics, can lead to struggles with growth and sustainability.
It is important to keep a handle on what your competitors are doing and stay updated on changes in the industry to make sure these tactics don’t hurt your business too much.
4.A mishandling of future assumptions
According to Dr. Pero Mićić, CEO of FutureManagementGroup AG, many companies recklessly manage their future assumptions.
This mismanagement can lead to costly mistakes and eventual business bankruptcies. A large part of future assumptions go undetected and are often treated casually or left unchecked.
The importance of future assumptions is overlooked or grossly underestimated by many companies and can cause long-term damage if not addressed in proper time. Therefore, it is necessary that businesses have an understanding of their future assumptions in order to become successful in their career and business endeavors.
How To Avoid Bankruptcies In Business According To The Expert
1.Slash expenses.
According to Lamar Hawkins, Phoenix Business Journal Leadership Trust Member, avoiding bankruptcies in business starts with slashing expenses. Business owners need to identify all existing expenses and take action by discarding those that aren’t critical.
Additionally, prioritizing the remaining expenses helps decide what needs to be paid first for the company’s survival.
A great opportunity for businesses is to try and negotiate rent concessions from landlords; since many offices continue to remain vacant due to more companies pursuing remote work, landlords might be open to working out a deal so that the business does not file for bankruptcy.
