Why Do Big Companies Go Bust?

Why Do Big Companies Go Bust

And the mistakes to avoid…

In 2020, over 600 corporations in the U.S. filed for bankruptcy. In India, that number touched 72. And in China, over 200,000 companies went bankrupt in the first two months of 2020. Declaring bankruptcy is becoming a common recourse for big and small companies. But what is causing companies to go bankrupt?

#1 Poor economic conditions

Covid-19 upended how businesses function. As borders closed, customers halted unnecessary spending, and companies shifted to the work-from-home model, market conditions changed in all respects. Poor conditions like these in the market often lead to bankruptcies

When a country or company witnesses low economic growth, it enters the “bust period”. During this period, consumer confidence declines and spending drops. This leads to a fall in revenue, as we saw with the Chinese real estate company Evergrande’s downfall.

#2 Going into debt

Often, to pursue their business goals like expansion, businesses take loans. Companies end up taking multiple loans or a few loans of really high amounts, even though their business idea doesn’t prove to be profitable sometimes. Because of that, they may be unable to repay the loans on time or at all, leading to defaults. A default is the situation when you miss repaying the loan altogether. The company then goes into debt, and that usually leads to bankruptcy.

#3 Imprudent decision-making

Lack of planning, researching and strategizing often leads to bankruptcy. That’s because companies fail to understand market needs. They end up creating products that customers are not interested in buying. This way, they lose money and are unable to get significant returns on their investment. When it comes to decision-making, a Harvard Business Review report rightly noted, “The problem is not inaction, it is not taking appropriate action.”

Factors such as losing key employees and not focusing on collecting money also play a role in the lead-up to bankruptcy.

How can you avoid going bust as a startup?

These are our top tips:

#1 Build a comprehensive business plan

Typically, a business plan covers your business strategies, performance trackers, goals, and finances. As the company grows, the business plan gets left behind. Make sure your business plan becomes your company’s bible. Expand it to include market analysis to ensure your product remains relevant, an investing strategy, and a budget.  

#2 Give due attention to consumer preferences

What customers want is ever-changing, and that is often influenced by changing economic conditions. For instance, during Covid, more people bought health-related products, like organic foods, to boost their immunity. That’s why it’s important to have a dedicated team to analyze market trends. This way, your product will always stay in demand, and you will have a positive cash flow, keeping you safe from bankruptcy. 

#3 Do not borrow too much money

Yes, your great business ideas need investment. And loans are a great way to enable that. But if you try to fill your cash flow gaps by availing of loans, it can be very risky. If your business idea doesn’t sell, you will end up in debt. It is better to try and effectively use your existing assets and funds. Don’t rely on loans alone. 

#4 Always get your money bank

In the beginning stages of your business, some people may offer to buy your product and pay later. However, if you don’t collect money from them in time, that might contribute to bankruptcy. For this, Karen Mills of Harvard Business School advised asking customers to prepay for future activities. She noted, “The whole strategy is to stay liquid, so you could offer a discount on next year’s activity if people pay up front.”

#5 Rule out any unnecessary expenses

Review your financial statements to see if your company is making any unnecessary expenditures. Check to see if you are paying for a product or service that you don’t use. Eliminate needless spending to avoid bankruptcy.

Bankruptcy does not signify the end of a company. After all, many well-known companies have successfully exited bankruptcy, including General Motors, Chrysler and more. While bankruptcy can lead to the sale of a company, it can also be a chance to restructure and begin again. 

Header Image by Unsplash


Share on facebook
Share on twitter
Share on linkedin
Share on email
Alinda Gupta
I am a professional journalist and gourmand with an inexplicable love for caffeine. I admire old architecture and find comfort in fiction books. I am also an A1-level certified French speaker—bonne journée!


Top 5 NFT Scam

Top 5 NFT Scam

From art pieces like EVERYDAYS: THE FIRST 5000 DAYS by Mike Winkelmann to cryptopunks and memes like Side-eyeing Chloe, the popularity of Non-Fungible Tokens (NFT) has been on the uptick. They have also been blowing up in value in 2021. NFT sale volumes have surged eightfold, reaching US$10.7 billion in the third quarter of 2021.

What Brands Must Know About China’s Evolving Millennial Buyers

What Brands Must Know About China’s Evolving Millennial Buyers

Earlier this year, climate activist Greta Thunberg called out fast fashion consumers during an interview with a fashion magazine. She said, “If you are buying fast fashion, then you are contributing to that industry and encouraging them to expand and encouraging them to continue their harmful process.”

What Is Femtech and Are Femtech Companies on the Rise

What Is Femtech and Are Femtech Companies on the Rise?

Women’s needs have been largely neglected for years. They get fewer job opportunities, excessive household work, subpar pay and little healthcare attention. Well, no more. The rise of FemTech startups (largely women-run) is changing the healthcare landscape for women. As per a report by CBInsights, FemTech will be worth US$50 billion by 2025. So, what is FemTech, and how can you get started?


The Power of Introverts at the Workplace

Psychologist Carl Jung describes introverts as people whose interests are directed inwards and towards their own thoughts or feelings. They typically struggle to adjust to social settings and are perceived as being reserved. Thus, at a workplace, the introvert might come across as a quiet or unsociable person and end up unnoticed, no matter how big their contributions might be.