Common Reasons for Closing a Company
There are various reasons why business owners decide, or are forced, to close their company. These may be internal or external, but they all lead to the same conclusion. Here we look at some of the common reasons for closing down a company.
If a company is not making a big enough turnover to break even and is incurring mounting debts, it may dissolve or go bankrupt. Running a business involves a lot of expenses; overheads, employees’ wages, production costs etc. If these aspects outweigh the money coming in, the business working at a loss. Spending more money in attempts to achieve a greater return can make a bad situation worse. With a lack of funds the owner of the company cannot be paid properly and there is no way for the company to move forward as there are no finances for development or growth. It therefore comes to a point where the business owners cannot recover or just decide that they have had enough.
Competition in business sectors is fierce, with a growing number of suppliers trying to catch a dwindling number of consumers. In particular small companies can struggle, with larger corporations dominating sectors by boasting an established business brand and reliability. Producing goods or providing services at increasingly low prices is affecting company return and market share. The more saturated the market, the more competition there will be and the harder it is to fight for a place. This is a common reason for the closure of companies as they just cannot stay afloat with the increasing opposition.
The current recession has made economic conditions dire and is the reason for a huge number of company closures. The economy has a significant impact on business operations and consumer spending and so companies are reliant on it for their success. Some business sectors and industries are more affected than others; for example, products and services considered a luxury are the first to be hit, and durable goods which have a short life span require larger financial investments cannot be sustained. Demand for products and services is crucial for businesses and a general lack of funds during the current worldwide recession has hit companies, some even multinational giants, hard.
Having a strong managerial structure within the company is important to its efficient operations and conflict between employees can cause serious damage to the business as a whole. This is particularly true with partnerships, where the two partners must work well together to ensure success. The reasons for employee conflict are varied, and may be personal or business related. Either way it is a common cause for company closure, with a partner buying out the other or both relinquishing liability.
Having access to necessary resources is imperative for companies to produce products and services. These include money, facilities, labour, manufacturing, land and natural resources. Without these resources companies cannot provide their products and services to the consumer and so operations begin to cease. If the company cannot run at this fundamental level they are unable to achieve a return and so are effectively redundant. The availability of resources hinges on the state of the economy, and if it takes a downturn as shown above, it can have a negative impact on businesses. Consequently this is also a common reason for company closure.
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