Recessions can cause businesses to fail

| May 7, 2020 | Business and commercial bankruptcies |

Sometimes, the reason your business faces bankruptcy has literally nothing to do with you. People often assume that filing for a business bankruptcy is an admission of failure. That couldn’t be further from the truth.

For instance, let’s assume that the country goes into a recession. Workers lose their jobs. This means that consumer spending declines rapidly. Even those who are still working may be hanging onto their money in case they get laid off.

Now, imagine that you are a proud restaurant owner. You provide a product that is consistently higher in quality than the fare at the other restaurants around town. It costs more, but people come to your restaurant for its organic, gluten-free options, extensive beer and wine list and the exotic dishes your chefs prepare fresh each day.

During the recession, your potential customer base drops to almost nothing. Workers who just got laid off aren’t paying top-dollar for food, no matter how good it is or how much it costs to make. They’re bargain-hunting now. Workers who still have their jobs may also be hesitant to pay so much for a restaurant meal. They want to spend as little as they can right now and are also seeking bargains. Businesses around you start to fail, and that just creates a cycle where you have fewer and fewer potential customers.

Eventually, you’re facing bankruptcy. Did you do anything wrong? Of course not. It was just an unlucky time to own a business that was dependent on consumers having extra disposable income. You can’t predict something like that, but it does happen.

If it happens to you, make sure that you know exactly what legal options you have and what steps to take next.