It’s important to understand that even profitable businesses can face bankruptcy due to a variety of factors. Don’t assume it can’t happen to you. Here are several scenarios that profitable businesses may face that may lead to bankruptcy.
1. A company’s debt doesn’t show up on the Profit and Loss Statement. Instead, it appears on the balance sheet.
2. A business has healthy sales but is unable to collect on their invoices. Prompt collections are vital to any health business.
3. A business attempts to grow too fast. A business in this situation can outstrip their available cash.
4. A business has a small setback, but does not have adequate cash reserves to cover the issue.
Often it is more important for a business to have positive cash flow than to be profitable. Positive cash flow is the key to business survivability.
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