Causes of bankruptcy should get the required attention at this time of our modern economic cycle as more cases of bankruptcy is continuously making headline on a daily basis.
Finding out what the major causes of both personal and corporate bankruptcy is the first step in the right direction that should be taken in order to effectively curb the viral effects of bankruptcy and financial crisis that is rocking our time.
Companies and individuals go bankrupt the moment court of competent jurisdiction declares them bankrupt. The mere fact that you owe someone or a business entity does not make you bankrupt. The person/ people that you owe will actually file a case against you in the appropriate court of law and due process followed before any chapter of the Bankruptcy Act/ Code is implemented.
It is not my intention to describe the process of bankruptcy in this article. What this article is set to achieve is to create awareness on the causes of bankruptcy and give hints on how to tackle the problem of bankruptcy.
SEVEN (7) REASONS WHY COMPANIES AND INDIVIDUALS GO BANKRUPT
1. POOR FINANCIAL MANAGEMENT: Poor financial management is the main reason why individuals and corporations go bankrupt. It is a no brainer figuring this out. An individual or organization that fails to take charge of their financial affairs will surely struggle and may end up becoming bankrupt if nothing tangible is done about their finances. One surest way of gaining financial independence is to improve your financial management skills as either a company or an individual. Little tasks like performing financial management SWOT analysis may highlight what has hitherto been hidden about your finances.
2. UNREST: You will agree with me that no meaningful economic activity will take place in an environment where there is unrest of any kind. This is one of the major reasons why corporate failure is very high in high conflict areas. To avoid going bankrupt as corporations, a sensible strategy is to swiftly divest out of a politically unrest zones. Doing this is a bit more challenging for SMEs and sole proprietors.
3. STRAINED RELATIONSHIPS: Strained relationships is a huge factor that makes a lot of difference between being financially buoyant or going bankrupt as an individual. Divorces are notoriously characterized by its attendant financial demands mostly caused by some emotional traumatic baggage that comes along with divorce proceedings.
4. INDISCRIMINATE USE OF CREDITS: Indiscriminate use of credit lines is a smoking gun cause of bankruptcy. this applies to both individuals and corporate organizations. Moderate use of credit lines is a good working capital management tool but it quickly becomes a problem when abused.
Credit card companies have just one mission and that is to make you spend money that you do not have so that you will end up struggling to keep up with loan repayment. I no problem with people spending through their credit cards, in fact, I some times recommend it because of its impact in boosting ones credit score. What I am however against is being reckless with spending the money that is not yours. Just for the record, I also have a credit card.
5. RISING UNEMPLOYMENT: Another major cause of bankruptcy is rising unemployment level. people that are used to spending big when in employment and then suddenly become unemployed tend to fall back to using all sorts of available credit lines. The level of debt quickly spirals out of hand before they know what is happening.
6. MAKING RISKY AND BAD INVESTMENT: I have seen a lot of people quickly moving from being financially healthy to being in a state of bankruptcy. Not everyone has the ability to decipher good investment and they end up really hurting financially thereby filling for one form of bankruptcy or the other.
7. BEING VULNERABLE TO FRAUD: Yes, being victims of fraud has caused a lot of people to file for bankruptcy. This fraud can come from within or from outside. Enron and many other high profile corporate bankruptcy are as a result of the fact that they are vulnerable to bankruptcy. Having a good internal control is often all that is needed to prevent fraudulent activities from happening.
Education is what we all need to effectively tackle this menace of bankruptcy. The millions of families and businesses that file for bankruptcy each year add to the bleak economic outlook of our time and the future generation.
Addressing issues causing bankruptcies / causes of bankruptcy is the best way of reducing the incidence of bankruptcy. Join in the fight against bankruptcy by sharing this article with all your loved ones that you so much care about.