In Business Why does a surplus bankruptcy occur?

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  1. In Business Why does a surplus bankruptcy occur?
    1. What is surplus bankruptcy?
    2. Private consolidation - In the business world Why do surpluses fail?
    3. What is the status of black bankruptcies?
    4. Surprisingly, many companies have failed in the dark.
    5. How does surplus bankruptcy work?

In the business world Why does surplus bankruptcy occur? Excessive bankruptcy occurs when profits are good, but cash flow is not good and bankruptcy is forced.

There are many models where the risk of excessive bankruptcy is difficult to detect because there are no problems on the books. Cash flow and inventory management are important to avoid profitable bankruptcy.

In Business Why does a surplus bankruptcy occur?

There are also some checkpoints to avoid black bankruptcy. Here, I will explain the mechanism of black bankruptcy and the points to check to avoid it, as well as the specific cases that may occur. Types of companies Why does surplus bankruptcy occur? First, what is a state of surplus bankruptcy?

What is surplus bankruptcy?

Bankruptcy is a state in which a company loses solvency and cannot raise funds, that is, it is unable to repay debts it would normally have incurred. Bankruptcy is not originally a legal concept, but there are differences in the procedure depending on whether the post-bankruptcy agreement is a legal or private agreement.

Legal agreement A legal bankruptcy agreement is a procedure prescribed by law. A distinction is made between the "compensation type," which involves wiping out assets and ceasing operations, and the "reconstruction type," which aims to revive the business with the help of a third party while continuing operations.

Private consolidation - In the business world Why do surpluses fail?

The debtor and creditors discuss and choose a method to consolidate the bankrupt's assets. There is a "suspension of operations," which consists of refusing to provide items, etc., for a certain period of time and for a certain number of times, and a "voluntary arrangement," which consists of carrying out the liquidation procedure after consultation.

What is the status of black bankruptcies?

Excessive bankruptcy is a situation in which you lose solvency because you do not have sufficient liquidity to cover your expenses, even if you make a good accounting profit.

Typical examples are: credit payments are not made on time, sales are slow, and inventory is undervalued. In particular, it is said to be easy for a start-up to become excessively bankrupt, as monetization of sales is delayed and available cash tends to be depleted.

Surprisingly, many companies have failed in the dark.

Tokyo Shoko Research Co, Ltd. studies the situation of a failing company. According to this study, of the 7,773 bankruptcies in 2020, 46.8 percent of companies went bankrupt in the dark, or nearly 50 percent of the total.

In other words, this percentage is almost identical to the percentage of companies that went bankrupt in the red, and it can be seen that a surprisingly large number of companies are forced to file bankruptcy in the black.

They are not necessarily bankrupt because they are in the red. When you hear about bankruptcy, it is easy to think it is because of a deficit, but if you have financial problems, it does not mean you are going bankrupt.

How does surplus bankruptcy work?

For example, if one month's sales are zero, your profits and losses for that month will be in deficit. But as long as you have enough money to make a monthly payment, your cash flow will be good. You can then avoid bankruptcy by increasing sales the following month. Below I will list the ways in which surplus bankruptcy occurs.

A typical form of surplus bankruptcy. For example, suppose that that month's sales amount to 900,000 yen. Even if the purchase price for that month was 600,000 yen, a surplus of 300,000 yen should remain in the accounts. However, if these sales are recorded as credits and collection occurs two months later, they will not be available even if sales increase by 900,000 in that month.

Conclusion

At this point, your funds will become negative and you will not have enough money to spend. Also, if you have a lot of inventory, even if there is a surplus in the accounts, the value of the inventory may not be included in the accounts. Again, the accounts should be positive, but it is difficult to realize that there are not enough funds.

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