Why Did So Many Businesses Go Bankrupt In 2018?

Now that we are a couple of months into 2019, quite a lot of business data and reports are being released to show just how well the corporate world performed back in 2018. And, from looking at some of the recent reports that have been released, it doesn’t look all that good. In fact, there was a lot of pressure on the business world last year and it looks like some companies, both small and large, succumbed to the many extra strains they were put under. You only have to look at many high streets up and down the country to see some signs of the pressure that the business world is under – many independent retailers have closed their doors and many household big names have also had to shut down some of their national branches.

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But why were quite a few once successful businesses claiming bankruptcy last year? There are many theories being batted around by industry experts, but it looks like some of the following reasons might be the main causes.

Brexit

The B word has been on everyone’s lips lately, and especially those of entrepreneurs and business owners. The truth is, no one really understands what is going to happen once the end of the month rolls around and the United Kingdom leaves the EU. In fact, many people are now starting to doubt that the exit will actually go ahead! But until we know for sure, there is no doubt that all of the uncertainty is causing a lot of extra pressure for businesses to deal with. Some companies that rely heavily on EU employees to make up their recruiting shortfalls have had to invest heavily into new recruitment procedures to try to find more staff, and this has cost them dearly. As well as this, many business’s investments have decreased by quite a lot, which has seen their own company value fall significantly.

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Poor Liquidity

Of course, we can’t blame Brexit for every single problem a business may face. There are still a lot of companies out there that are being run incompetently, which is pushing them ever closer to bankruptcy. One such example is the various businesses that operate with poor liquidity. You might have heard this referred to as poor cash flow before. It basically means that they don’t have enough money in the bank to pay their creditors and suppliers. It might also mean that they can’t afford any debt and loan repayments. If you are running a business with poor liquidity, you shouldn’t continue as you are doing so. You might want to sell off an asset to raise a few extra funds that can go straight into your bank account. If that won’t work, it might be useful to try to find some extra investment from an investor.

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Expensive Compensation Payouts

Employees can be a big liability for many companies. You never truly know who you are hiring to bring into your team, so you might end up with an employee who barely works and ends up being a drain on your company. But even the hardest of workers could prove to be a risk as anyone could end up suing your company for compensation if things don’t go quite right. There are many things that employees have a legal right to take their employer for court over, but the two main ones are workplace accidents and poor conditions in the workplace. There are so many online tools and resources online, such as this injury compensation calculator, that many workers are actively encouraged to take action if something does go wrong for them in the workplace that wasn’t their fault. As a result, many employers need to start improving their conditions in the office and ensuring that each employee receives a fair pay packet and is treated equally during their time at work. Otherwise, the company could face some hefty compensation payouts which could be ultimately too expensive for them.

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Strong Competition

You can never tell when a new company will pop up in the market and end up being one of your closest competitors. However, when this does occur, you need to be ready to pull out all of the stops so that they don’t end up taking too much of your market share. If that does happen, you could really struggle to get it back again. When you do face some pretty stiff competition, it is always necessary to increase your marketing efforts so that you can increase your brand’s visibility and start appealing to even more new customers.

High Employee Turnover

High employee turnover might not always be such a dire issue that companies need to take control of, but there are some scenarios in which this could put you on a straight path to bankruptcy. However, if you are losing a lot of your top talent all at the same time, it’s necessary to find out why so many great workers are leaving, so that you can quickly improve things. Losing talent will be a drain on your company, and losing some very experienced and knowledgeable employees could reduce your company’s productivity. Not only that, though, but starting the recruitment process to replace them will also take up a fair bit of money.

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A Change Of Leadership

Some companies find it very difficult to overcome a change of leadership. A new leader might try to take the company in a completely different direction, which might mean taking the business away from some of its core values and goals. This might not be what some of your loyal customers could expect, and they might end up going off to your competitors as a result. If you do decide to change the company’s leadership, it’s important that you go with the right option. You should then ensure that the transition lasts a few months so that you can slowly iron out any bumps that might occur before it is all finalised.

Let’s hope you don’t face any of these issues this year!

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