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Does increased competition lead to bankruptcy?

On Behalf of | Mar 17, 2022 | Business Bankruptcy |

One of the things that potential business owners consider carefully when they decide to start a business is if they have a lot of competition in that space. Most businesses have some competition, as evidenced by cities with hundreds of similar restaurants, but owners want to check the area that they’re hoping to expand into and determine if there’s too much competition for their business to be viable.

If they think that there isn’t enough competition, then perhaps they’re giving their clientele something that they’ve been looking for, and it’s a good place to start the company.

When competition moves in, it can hurt your business in numerous ways

But what if there’s increased competition in the future? Say you start your restaurant because there aren’t many others around and then a big chain restaurant comes in and sells similar products for a much lower price point. You can maintain that your products are better or that you offer a better experience, and that very well may be true, but could something like this cause your company to go bankrupt when it would have succeeded otherwise?

Competition can be good in some ways, but it can also be problematic. It means that the percentage of the market share that your company gets is going to be smaller. The customer base available to you is going to shrink. This is especially problematic in a situation where there already wasn’t that much demand. But even if there was a lot of demand, any sort of reduction can hurt your sales numbers. Plus, since that other restaurant has lower prices, you may have to consider cutting your prices and therefore your revenue on every sale that you still make.

If competition does make it so that your financial situation has to change, you need to consider all the options you have, one of which might be using bankruptcy to restructure or alter your debt.