It may be easy to think of your business as one that is safe from bankruptcy. Maybe you have a company history stretching back decades. Maybe it feels like the business is too big to fail. Perhaps you offer things that you believe consumers will always want or need, so you don’t see that demand ever ending.
Certainly, you want to protect your company from bankruptcy, but don’t assume that you can always avoid it. In fact, there are cases where bankruptcy can be a useful tool. This is true for companies in all markets and all industries. Don’t overlook that usefulness.
The role of externalities
The reason that you can’t entirely bankruptcy-proof a company is that the strength of said company depends on more than just your own decisions as owner and CEO. A lot of things are completely out of your hands. You have zero control. Even so, they can massively impact your business. These are typically called externalities. Some examples include:
- Stock market crashes
- Economic recessions
- Natural disasters, such as floods, fires, cyclones or droughts
- Changes to tax laws or regulations
- Mistakes made by other business partners
- Changes in the exchange rate
- The rise of new competitors
- The creation of new technologies
- Unexpected defaults by those who owe you
- Alterations to procurement policies by corporate customers
- Unpredictable changes in typical customer buying decisions
You can’t always control these issues. You may have incredible products and services, but what if people view them as a bit of a luxury? For instance, say you offer lawn services and employ 30 people. You’re doing well, but what would an economic recession mean? Would your lawn customers try to trim their own bills? If so, there are likely things they value above lawn services. If so, even if they absolutely love the job you’ve been doing, they may end their contracts with you and send your company into bankruptcy.
What are your options?
Since you can’t control everything, what you can do is to plan ahead. You must know what options you have and what steps to take. Rest assured, you do have legal options, no matter what your situation looks like.