The rate peaked in the second quarter of 2009. It has been on the decline since. Most areas of the country were down with California leading the list. The worst area for bankruptcies was the New York metropolitan area.
Since the financial crisis began many small business have been deleveraging. This has put them in a much stronger financial position. They can now weather a bump in the road better than they could have before the crisis. Another factor is the decrease in the number of new businesses being started. It is the newest businesses that are most likely to declare bankruptcy. The final factors that has brought the rate down is that many of the poor business ideas have already gone out of business.
There are several things that every business owner should manage to stay afloat. The old adage that cash is king is still true. Every accountant in a well run business has a cash flow forecast. This should outline how much money the business has on any given day. If there is ever a negative the business better speed up their flow or receivables or slow down their payables. Failure to do so will signal the end of the business. The better run the company the longer the forecast can be run.
A growing business can be profitable and still go bankrupt. The simple reason is the cash flow may be too slow to cover the increased capital expenditures for growth. Many a business owner has gotten themselves in trouble from only looking at the P/L statement and not the balance sheet and cash flow statement. If you do not understand how all three relate then it is time to get some help from your accountant. A bit of knowledge can be a powerful thing.
Labels: bankruptcy, cash-flow, Equifax, P/L
