The Rise In Business Bankruptcies: Key Trends And Steps For Leaders

Forbes

21-03-2025

Joe Camberato is the CEO and Founder of National Business Capital, a leading fintech marketplace offering streamlined small business loans.
From March 2023 to April 2024, business bankruptcy filings rose more than 40%, affecting companies across many different industries. Many large, well-known companies experienced the fallout from high interest rates and inflation.
A Cornerstone Research report found that 113 private and public companies with assets over $100 million filed Chapter 7 or Chapter 11 bankruptcy. Plus, 16 'mega bankruptcies'—companies with over $1 billion in assets—occurred in the first half of 2024. This is the highest number of mega bankruptcies in a six-month period since the Covid-19 pandemic.
These filings increased across all industries, but the retail trade, services and manufacturing industries got hit the hardest. The services industry in particular accounted for 29% of all bankruptcies, which was a significant increase from its historical average of 17% from 2005 to 2023. Additionally, bankruptcies rose across the finance, insurance and real estate industries.
By the end of 2024, total business bankruptcy filings rose 22.1%—from 18,926 in 2023 to 23,107—according to statistics released by the Administrative Office of the U.S. Courts.
So, what's causing the increase?
Business bankruptcies have grown in recent years, fueled by economic pressure and changes in the market. When a company goes out of business, there's not one factor you can single out as the culprit—it's usually a combination of many different factors. Let's look at four trends that are negatively affecting many companies as well as ways you can protect your business in difficult times.
Most companies cite rising costs from inflation and interest rates as the number one reason they filed for bankruptcy. For example, Red Lobster pointed to macroeconomic pressures like inflation and rising wages, while Enviva stated that historically high inflation hurt its profit margins on long-term contracts.
Inflation drove up the cost of raw materials, labor and energy, eating into business profit margins. Many companies carry debt with variable interest rates, so the cost of managing this debt also increased as interest rates rose. The combination of inflation and high interest rates put pressure on companies from all sides, making it harder for them to maintain a positive cash flow.
These trends pale compared to 2020, when business bankruptcies hit a 10-year high and 630 companies filed for bankruptcy. But in many ways, what we're seeing now is the lingering effects of the pandemic. Over 79% of the mega bankruptcies cited it as a significant contributing factor.
Companies like Bed Bath & Beyond and Revlon struggled with supply chain disruptions that increased costs and made their day-to-day operations less efficient. Plus, many businesses dealt with staffing shortages and higher wages, all while trying to navigate lower profit margins.
However, perhaps the most significant factor was how the pandemic permanently changed market dynamics. Covid-19 rapidly accelerated changes in consumer behavior, forcing companies to adapt to new markets. Many large companies just couldn't keep up with the speed and scale of these changes.
Increased competition within industries also contributed to reduced profits and market share for many companies. Well-established companies are now forced to compete with more agile competitors. For instance, Rite Aid noted it has to compete not only with traditional drugstores and supermarkets but also with online retailers like Amazon.
Increased competition forces these companies to lower prices to attract new customers, which also lowers profit margins. When you combine that with rising costs and high interest rates, companies have fewer resources available to deal with these lower margins, increasing the risk of bankruptcy.
The Cornerstone Research report also highlights how many companies struggled with unsuccessful strategic initiatives, which led to financial losses. Many companies attempted to pivot during the pandemic by offering new products, but these efforts ultimately fell short. For example, some companies tried to begin offering remote services without understanding the full investment required to make these changes.
Many established companies in the retail and manufacturing industries were unable to innovate or pivot quickly enough. Their reluctance to embrace new technologies or change their business models only made them more vulnerable.
Federal support, such as the Paycheck Protection Program, provided temporary financial relief. However, it was ultimately a temporary lifeline carrying many companies that would have gone out of business without it.
Federal relief programs can help you get through a difficult season in your business, but they aren't a long-term strategy. Start taking proactive steps to improve your financial and operational structures. For instance, you may need to renegotiate your debt terms to improve cash flow.
It's also important to address supply chain vulnerabilities and hiring challenges before they turn into major business disruptions. But most importantly, start investing in innovation and digital transformation now. This is about more than just adopting new software—it's about rethinking your company's processes and how you engage with your customers.
For example, you may need to diversify your product line or switch up your marketing strategy. Incorporating strategic initiatives and strong financial planning is the best way to navigate a competitive market and protect your business in difficult times.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?