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The primary reasons why businesses become bankrupt are ineffective management and ineffective leadership.

October 16, 2019


The business to be exist in the market the effective management and effective leadership is vital in today's competitive market. Today the business market is very competitive companies face different challenges in the business environment. The business must have strategic plan to continue in the market. The most of the time business goes bankrupt due to the poor decision from management. Apartment from ineffective management and ineffective leadership. The business could be bankrupt for some other reasons like market condition, financial situation, accidents and tax-related problems.

Market Condition

During the poor economic condition most of the businesses struggle to survive in the market. The economy is boom it would favorable condition to operate business and generate more profit. But in the recession period most of the consumer purchasing power would declined result in reducing business revenue. Thus the business face difficulty in making profit,  lead lose and bankruptcy. Increase in the competition also face some small firms to go out of the business.

Financial Situation

The finance is the life blood of any business. So the finance should be manage effectively. The business can be operated by allowing credit to customer as well as purchasing good on credit and taking loan from lender. The business have to maintain  good liquidity ratio by managing creditors, debtors and lenders (loan). If the finance was not managed effectively sooner business will run out of cash. If the business do not have cash for working capital the chance of business going bankruptcy will very high.


Accidents can also be one of the prime factors leading to business bankruptcy. Though insurance may cover lawsuits, bureaucratic red tape sometimes prevents the owner from getting the money in a timely manner. The business have to insured always if not we may have to face bankruptcy without knowing. Accidents like fire or natural disaster may huge damages to the business if the owner was not able to cover insurance may result in financial difficulties and leads to business failure.

Tax-related Problems

Often small business owners do not keep a keen eye on the tax structure and when they finally notice, the hefty amount crushes their resources. The law require the business to maintenance record for certain standards and keep a records of specific period of time. Most of the small business were unaware tax related law and regulation result in legal fine of large amount. Most of the time they do not have lump sum  amount to pay these fines and result in bankruptcy. The business cannot escape always from laws and regulation. 


Many leaders were selected for management positions because of their excellent building and technical skills, but ended up running large companies that far exceeded their business management capabilities. Strategic mistakes and indecision can lead to problems not getting resolved, which can also topple companies. It is essential for a business owner to try to overcome the financial problems that often occur due to poor planning and lack of finance and continue to run the business until it turns profitable. We can agreed on most primary reason for business bankruptcy was due to ineffective management and ineffective leadership. The financial and tax related problems also most of the time occurs because of ineffective management. However there were certain condition like market condition and accident make business struggle to operate in the market. The business must have its strategic plan to overcome the problem face by business. Today increase of globalization business competition are very high, without effective management and effective leadership we cannot survive in the market.
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