There are several common causes of small business bankruptcy. Unrealistic expectations about revenue and the time commitment required can lead owners to underestimate costs. Personal problems of owners, like debt, can indicate business troubles. Many businesses also fail due to undercapitalization at startup and insufficient funds to cover costs before becoming profitable. Poor cash flow management and an inability to reinvest in marketing and products often precedes bankruptcy. Additionally, losing key personnel or choosing a poor location can significantly hurt a small business's chances of avoiding bankruptcy.
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