Why Do Companies Go Out of Business?


Quick Answer

Some reasons why companies go out of business include poor leadership, financial problems, economic problems and legal problems. Up to half of all businesses fail within their first five years.

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Full Answer

Poor leadership can cause a company to go out of business because these individuals can be bad at motivating their employees and making hard business decisions. The leadership committee of a company must understand the business's market and know how to generate revenue for the company and lower costs. Financial problems such as lack of capital and cash flow can cause a company to go out of business. Capital and cash flow help companies purchase things that can help move the business forward, and lack of financial resources leads to unpaid bills and bankruptcy.

Economic problems such as changes in consumer trends and recessions can also cause a company to go out of business. Companies have to make sure they are in line with the desires of their customers, because the markets are always evolving and some companies fail to evolve. Recessions can lead to a company failing because their customers have less money to spend. Legal problems such as lawsuits and regulation changes can lead to a company losing large amounts of money and effectively shutting down because of failure to comply with certain legislative regulations.

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