Business Failures Leading to High Number of Chapter 7 Bankruptcies

According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years. In his book Small Business Management, Michael Ames gives the following reasons for small business failure:

•Lack of experience

•Insufficient capital (money)

•Poor location

•Poor inventory management

•Over-investment in fixed assets

•Poor credit arrangements

•Personal use of business funds

•Unexpected growth

This listing does not even mention the tendency of some new business owners to get in to a certain field that is growing without recognizing that the expanding level of competition, particularly within certain geographic locations, will lead to low levels of sales insufficient to carry a business.

People starting small businesses need to recognize that, if success means maintaining a going concern for over five years, the chances are not much better than a baseball player hitting a .300 average which, of course, is a good batting average in the major leagues. According to Dun & Bradstreet reports, “Businesses with fewer than 20 employees have only a 37% chance of surviving four years (of business) and only a 9% chance of surviving 10 years.”

The result of all this is that small businesses file Chapter 7 liquidations in much greater numbers than large companies filing corporate reorganizations under Chapter 11. Since the current bankruptcy code became effective in 1979, about 14,000 filings of Chapter 11 business reorganizations have taken place annually although there have been spikes such as in 2008 when the financial crisis took hold. Generally less than a third of these are considered small business filings. By contrast, in 2008, 744,424 filings were chapter 7 bankruptcies. Although many of these were caused by other problems such as medical bills, divorce or inability to pay home mortgages, if you accept that statistics kept by the federal bankruptcy courts estimate that 96% of those are related to those personal, non-business reasons, the remaining 4% of Chapter 7 cases still come close to the level of 30,000, almost twice the level of corporations annually filing Chapter 11 cases.

In Albuquerque, Giddens & Gatton Law, PC has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases in New Mexico. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment with one of its New Mexico bankruptcy lawyers or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.