how is it that in times of crisis major businesses will go bankrupt within months? Do they have no savings or what?
In: Economics
Well it depend on the business. What if they just made a new factory and so they have a lot of debt for some period of time when the crisis hit. What if they are very sensitive to the crisis in specific, for example construction here is doing not that bad, some project were stopped and we receive less work, but compared that to restaurant that were completely empty for the last week. The impact on different industry is different.
The cost of maintening a business can also be astronomical. The larger they are the bigger the cost. It doesn’t matter that nobody buy their product or services anymore, their income drop, but they can’t decrease their cost by much and no matter how much money you have aside it will be drained so quicly. Imagine a company with monstly cost of several millions, you can’t keep tens of millions aside just in case.
In addition, some companies might decide that it’s better to close now than to bleed for months before finally having to close. You don’t need to run out of money to close, you can do the math and figure out that you will for sure close in a couple of months and you are better off closing now and saving what you can.
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