Businesses Facing Bankruptcy And How Consumer Bankruptcies Affect Small Businesses

Bankruptcy filings dropped by 24% in 2021 from a high 544,463 cases in 2020 according to data from the Administrative Office of the U.S Courts. These included filings for both businesses and non-businesses. Both businesses and individuals struggled to survive during the COVID-19 pandemic, leading to a loss of income on a large scale. The financial crisis started to die down as aid efforts grew and COVID-19 impacts subsided. 

The bankruptcy filings, however, started to creep back in early 2022. Individual and commercial bankruptcies grew by 33.5% between February and March 2022. Several factors, including inflation, high interest rates, supply chain disruptions, and the Ukraine war have led people and businesses to seek bankruptcy relief as a last resort. 

Businesses Facing Bankruptcy

2022 already saw major companies file for bankruptcy protection. The most notable ones include:

  • AIG Financial Products  –  One of the biggest bankruptcy filings was by AIG Financial Products which listed $37.4 billion in claims. The company almost paralyzed the global economy in 2008 after issuing mortgages to customers with low credit ratings. In 2022, AIG finally bowed out by filing for bankruptcy to avoid lawsuits that have followed the company since the 2008 crash.  
  • FTX crypto exchange – 2022 marked the crypto winter with the collapse of several crypto companies, among them cryptocurrency exchange company,  FTX Trading Ltd. The company filed for bankruptcy on November 11, 2022, citing loss of faith in the platform which led to a liquidity crunch. The company owes creditors more than $8 billion. 

BlockFi, Three Arrows Capital. Celcius Network also filed for bankruptcy, registering one of the largest debts at $.5.5 billion. 

  • Cineworld Group – Cineworld Group, the second-largest theater chain after AMC Theaters, filed for chapter 11 bankruptcy on September 7, 2022. The company had over $10 billion in debt after failing to recover from the pressures of COVID-19 and a massive debt load.

The Upcoming Bankruptcy Crisis

Research indicates that bankruptcies will continue to loom in 2023, going above pre-pandemic levels by 2%. 

According to a report by fa-mag, rising corporate debt will be the end of many companies. As interest rates rise, companies will lack the capacity to refinance debts at lower rates. Businesses will either have to refinance their loans at higher rates or close down. 

Top industry sectors facing bankruptcies and where the trend is expected to continue are:

1. Real estate

Real estate bankruptcies rose by 40% in late 2022 and went on into early 2023 due to rising material prices and cash flow difficulties. Many businesses have had to downsize operations, cut down staff, and postpone investment projects. According to Fortune, the real estate sector produced 1115 bankruptcy filings in 2022, just one digit drop from 1116 in 2021. 

2. Private equity companies

Filings increased by 16% to 49 in 2022 according to S&P Global Market Intelligence. These include consumer and healthcare companies. 

Consumer staples generated 15 bankruptcies while healthcare had 11 filings. Studies indicate that healthcare bankruptcies were up by 84% reaching pandemic levels. There were 31 case filings in 2022, ranging from liabilities of between $10 million and $500 million. 

3. Crypto firms

At least 6 crypto businesses sought bankruptcy protection in 2022 and the trend is expected to have a domino effect. 

Consumer Bankruptcies and Their Effects on Small Businesses

Consumer spending is the most crucial driver of businesses. Almost two-thirds of consumer spending is on services, like real estate and health care. Financial and internet services are also on top of the list. Customers spend one-thirds on consumption goods.

An increase in consumer bankruptcies can lead to business bankruptcy in the following ways: 

  • Decreased consumer spending, causing companies to lose profits and have poor cash flows
  • Failure of consumers to pay debts or only repay partially, which affects business cash flows
  • A drop in prices due to low demand leading to losses or lower business profits 
  • Consumers shift to cheaper alternatives or second-hand items hence businesses sell less or decrease production

Strategic Marketing to Survive Bankruptcy

Research has shown that marketing has a role in reducing your business’s bankruptcy risk. Marketing can help increase your sales and shareholder value.

Having strong marketing assets and big marketing budgets, however, doesn’t guarantee that your business will not fall into bankruptcy. 

Strategic Marketing

You need strategic advertising to increase your business’s sales and shareholder value. That means that your marketing efforts must be aligned with your business strategy. As Paul Talbot stated in his article titled “Lessons From A Bankrupt Brand”, you shouldn’t assume that your business and marketing strategies are aligned. Bad marketing equals bankruptcy. 

Creating a marketing plan and strategy gives you more chances of success in attracting clients. 

Your plan should include:

  • An overall marketing strategy and specific marketing tactics

Apart from having an overall marketing strategy, you need a plan on how to carry out more specific marketing for your products or services. These include how you will market, price, and distribute your products and services.

  • How to keep your expenses down if you’re low on revenue

When you’re low on revenue, you need a low-cost marketing plan that will expand your customer base. For instance, you can include free marketing ideas like using Facebook, Google+, LinkedIn, and YouTube marketing.

  • A working document rather than a fixed one

Your marketing plan should not be set in stone. You should change it up to include new ideas based on current circumstances. For instance, if you’re facing bankruptcy, it should be time to edit your marketing plan to include tactics such as rebranding. 

As we expect more bankruptcies going forward, prepare your business to brace for the tough times. Proper marketing that helps you attract clients and stay ahead of your competitors.

In a world where it’s hard to set yourself apart, Bold Digital Ventures helps you craft a unique marketing strategy that helps your business grow. We are a digital marketing agency that focuses on delivering the best results in paid ad marketing, social media, web design, e-Commerce, and more. Get started on your journey to success by contacting us today.

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