Top Causes of Business Debt

debt blocks-hands

Small businesses acquire debt for various reasons. If the debt is too much to resolve, the business isn’t profitable, or demand for its products and services declines, it may be forced into bankruptcy. Outside forces can lead to increased business debt as well. When your company faces a large amount of debt, options may include closing or reorganizing the business. A business debt attorney can help you decide on the best solutions if any of the following scenarios apply:

Poor Market Conditions

The economic cycle can impact a business. Whether the economy is expanding or there’s a lull or recession is out of your control. A slow economy can lead to reduced revenue. Shifts in customer preferences, especially in niche markets, can lead to fluctuations as well. And, if larger companies are providing competition, it can bankrupt smaller firms. Losing trade accounts forces you to find new ways to generate sales and/or reduce overhead costs, or else face the financial consequences. Economic factors can influence any of these circumstances.

A Lack of Financing

Financing is always a concern for a small business. If you’re a business owner, chances are you’ve taken out loans to get started and sustain your operations. Lenders can be fickle when you ask for additional loans. When additional funding is denied, you may be forced into bankruptcy. But even short-term financing might not keep your company going long, as high debt and interest rates can reduce profitability.

Unsuitable Planning

Failure to plan ahead can lead to poor decisions. For example, developing a new product requires studying what customers need, how it works for them, and how much production will cost. A useful product won’t help much if it doesn’t lead to profit. Reduce your chances of making mistakes by educating yourself and gaining experience in finance and management. Strong management control is essential for dealing with day-to-day issues, developing a business plan, and understanding your customers and the overall market. Otherwise, you might spend more time dealing with unsatisfied customers, excessive costs, and unscrupulous creditors.

Bad Cash Flow Management

Even if your business makes money, cash flow must be managed properly or else there may be issues with paying creditors. Your debt may increase, and you may have more stock than you can sell. Other issues include late invoicing and other poor accounting practices, inaccurate forecasting, and failure of your overall capital planning strategy. Poor cash flow management will ultimately lead to small business failure.

But like economic factors, there are other issues that are harder to control. A less than ideal business location, unexpected loss of employees, lawsuits, illness, divorce, and unforeseen disasters can drive your business into debt and in need of an Orange County bankruptcy attorney.

Seek Help Before It’s Too Late

Everyone needs a little financial guidance every now and then. OakTree Law can provide advice and assistance on bankruptcy if your business is in financial hot water. You can declare Chapter 7 bankruptcy if you intend to close your business and wipe out unsecured debt, or Chapter 11 bankruptcy to reorganize your business while retaining control of it. Our Los Angeles bankruptcy attorney can manage the bankruptcy process while avoiding some of the risks associated with it while ensuring you benefit as much as possible.

For more information on our bankruptcy services and our business litigation experience, loan modification expertise, and other legal specialties contact OakTree Law today at 562-219-2979 or request a free evaluation online.