When the company fails – the personal crisis behind bankruptcy

Running your own business is not only a financial risk – it can also be a deep personal crisis if the business has to close down. What does the research say about that?

– Many entrepreneurs identify strongly with their business, and when it fails, they experience it as a personal defeat, says Anna Jenkins, associate professor at the University of Queensland, Australia.

Bankruptcy and business failure are often associated with financial problems, but the emotional consequences are just as significant. According to Anna Jenkins’ research, bankruptcy can lead to social isolation, stress and an identity crisis.

– For many, the company is closely linked to their self-esteem and social life. When it disappears, they experience not only a financial loss, but also a loss of context and meaning. Entrepreneurs who identify strongly with their business find it particularly difficult to move on after a ‘failure’.

At the same time, some entrepreneurs experience a sense of relief once the decision to close the business has been taken.

– Struggling to keep the business alive is extremely stressful, and several of the people I interviewed said they felt a sense of relief when it was over, says Jenkins.

Strategies to reduce the risk of bankruptcy

Although some factors are difficult to control, there are strategies to reduce the risk of bankruptcy and better manage crises. Anna Jenkins emphasizes the importance of having a clear strategy for finances and avoiding mixing business and personal finances.

– I’ve seen entrepreneurs lose their houses and homes because they invested too much of their personal assets in the business. Having a buffer and not taking unnecessary financial risks is crucial, she says.

Another important factor is to seek help in time. Entrepreneurs who have a good relationship with an accountant or business adviser can make more strategic decisions and act more quickly, often giving them more options, according to Anna Jenkins.

Dealing with the aftermath of bankruptcy

She emphasizes that bankruptcy is a process that continues even after the business has closed.

– Unlike a regular employment where you can leave your workplace and move on, a business closure often means that the entrepreneur has to deal with a long administrative process involving debts, contracts and employees.

It is also important to understand that reflecting and learning from a bankruptcy takes time. But according to Anna Jenkins, it is difficult to learn from your mistakes when you are in the middle of a crisis.

– Self-awareness and learning often only come afterwards, she explains.

Important to talk about failures

Anna Jenkins’ research shows that bankruptcy is still stigmatized, especially outside the startup world.

– In some industries, like the tech sector, failure is seen more as a natural part of the process, but for most small business owners it is still a shameful experience, she says.

To reduce the stigma and increase understanding that failure is part of entrepreneurial life, she says it is important to talk more openly about the subject.

– Having the courage to share experiences and insights can help others deal with their own crises and contribute to a more realistic view of entrepreneurship.

Contact a.jenkins@business.uq.edu.au