Drawing from these experiences, this article explores the five biggest reasons companies go bankrupt and provides insights into the lessons learned from these case studies.

1. Poor financial management

Poor financial management is one of the most prevalent reasons companies go bankrupt. This includes inadequate cash flow management, excessive debt and lack of financial planning.

Inadequate cash flow management. Cash flow is essential for day-to-day operations. Companies that fail to manage their cash flow effectively can quickly find themselves in financial trouble. For instance, one of our clients faced significant cash flow issues due to seasonal fluctuations in revenue. Without a robust cash flow management strategy, they struggled to cover their operational expenses during off-peak seasons.

Excessive debt. High levels of debt can be a burden, particularly if the company’s revenue projections fall short. This was a critical issue for another client of ours, which had accumulated substantial debt from its ambitious expansion plans. The debt burden became unsustainable when the expected increase in occupancy and revenue did not materialize.

Lack of financial planning. Without a comprehensive financial plan, businesses may fail to allocate resources efficiently, invest in growth opportunities and respond to market changes. Both the clients I mentioned above lacked detailed financial planning, which contributed to their financial instability.

2. Market changes and competition

Market dynamics are constantly evolving, and companies that fail to adapt can find themselves at a disadvantage. Increased competition, changing consumer preferences and disruptive technologies can all contribute to a company’s downfall.

Increased competition. New entrants or aggressive strategies from existing competitors can erode market share and profitability. One resort client faced intense competition from newer, more modern resorts in the area. Their inability to differentiate themselves and offer competitive amenities led to a decline in occupancy rates.

Changing consumer preferences. Consumer tastes and preferences can shift rapidly, impacting demand for products or services. For example, a hotel client struggled to attract younger travelers who preferred boutique hotels and vacation rental accommodations over traditional hotel stays. The client's failure to adapt to these changing preferences resulted in declining revenues.

3. Ineffective leadership and management

Leadership is crucial in steering a company through challenges and toward growth. Ineffective leadership can lead to poor decision-making, low employee morale and strategic missteps.

Poor decision-making. Leaders who lack the necessary experience or skills may make decisions that adversely impact the company. One client made several poor strategic decisions, including overexpansion without adequate market research and financial backing. These decisions stretched their resources thin and contributed to their financial troubles.

Low employee morale. A demotivated workforce can lead to decreased productivity, higher turnover and a negative company culture. For one client, low employee morale was a significant issue due to a lack of clear direction and support from management. This impacted the quality of service and guest satisfaction, further exacerbating their financial problems.

Strategic missteps, Strategic planning is essential for long-term success. Companies that lack a clear strategy or fail to execute their strategy effectively may struggle to achieve their goals. Several clients have lacked coherent strategies for growth and customer retention, leading to operational inefficiencies and financial strain.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

4. Economic downturns

External economic factors can have a profound impact on businesses. Economic recessions, fluctuations in currency exchange rates and changes in interest rates can all contribute to financial distress.

Economic recessions. During economic downturns, consumer spending typically decreases, affecting revenue streams. Our resort client was particularly vulnerable to economic recessions, as discretionary spending on travel and leisure declined. This resulted in lower occupancy rates and revenue.

Fluctuations in currency exchange rates. For companies involved in international trade, currency exchange rate volatility can impact profitability. It can be a significant risk for many businesses with international operations.

Changes in interest rates. Rising interest rates can increase the cost of borrowing, affecting companies with high debt levels. One client faced increased interest payments on their substantial debt, which further strained their financial resources.

5. Legal issues and compliance failures

Legal challenges and compliance failures can drain resources and damage a company’s reputation. This includes lawsuits, regulatory fines and failure to adhere to industry standards.

Lawsuits. Litigation can be costly and time-consuming. Two clients faced legal challenges related to labor disputes and contract issues. These lawsuits diverted management’s attention and financial resources away from core operations.

Regulatory fines. Noncompliance with regulatory requirements can result in substantial fines and operational disruptions. While not a significant issue for the case studies discussed, regulatory compliance remains a critical concern for many businesses.

Failure to adhere to industry standards. Adhering to industry standards is crucial for maintaining customer trust and operational efficiency. Companies that cut corners or ignore these standards risk damaging their reputation and facing operational setbacks. Two of our clients struggled with maintaining industry standards, impacting their customer satisfaction and loyalty.

Conclusion

Understanding common reasons why companies go bankrupt can help businesses avoid these pitfalls and build a foundation for long-term success. Poor financial management, market changes and competition, ineffective leadership, economic downturns and legal issues are significant factors that can lead to bankruptcy. It is clear that proactive planning, effective leadership and strategic adaptability are essential for navigating these challenges. By addressing these critical areas, businesses can improve their resilience and increase their chances of success in a competitive market.

Related Content

• 10 Things You Should Know Before Filing for Bankruptcy
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• When Is Bankruptcy the Right Move?

From modest beginnings in small island states, citizenship by investment (CBI) programs have grown into a worldwide industry with diverse opportunities for acquiring citizenship in a foreign country through economic contributions. These programs play a growing role in global economics and trade, offering countries a means to attract foreign capital and individuals a pathway to diversify their citizenship portfolio.

For successful applicants, CBI programs increasingly demand expertise, meticulous application preparation and staying updated with evolving program information for success. It can be helpful to review the origins and recent developments of economic citizenship to understand CBI programs and plan for how they may evolve in the year ahead.

The birth and expansion of CBI

Economic citizenship programs emerged in Pacific Island microstates, with some of the first programs arising as clandestine or unofficial revenue sources for the microstate governments. Based on my observations, official CBI policies first took root in the Caribbean in the early 1980s. Dominica was an early adopter of granting economic citizenship, recognizing the benefits investment immigration could bring to its economy. St. Kitts and Nevis introduced the first codified CBI program in 1984, one year after gaining its independence from the United Kingdom, setting a precedent for other nations by including CBI in its 1984 Citizenship Act.

The success of Caribbean CBI programs led to their adoption in other regions. In 1986, Canada introduced its Immigrant Investor Program (IIP), marking the beginning of residency by investment programs. The United States followed suit with the EB-5 Immigrant Investor Program in 1990, and similar programs were later established in Australia, New Zealand, the United Kingdom and the European Union.

Political and economic factors driving the evolution of CBI

Several overarching factors have driven the growing interest in CBI programs:

• Political and economic instability. Some individuals from unstable regions have sought the stability and security offered by secondary citizenship.
• Global mobility. Since the inception of CBI, the desire for visa-free travel and the ability to move freely across borders has driven demand for secondary citizenship.
• Unstable governments. Families looking for a secure and stable environment often turn to CBI programs as a plan B.

While CBI programs have consistently been in demand due to the need for global mobility and security, certain events have historically created a spike in interest in CBI programs:

• Election cycles. Demand often rises during election periods, particularly in U.S. presidential elections. The 2020 election period, for example, saw a notable increase in demand for secondary citizenship as a plan B.
• Geopolitical catalysts. Events such as Brexit (2016), the Hong Kong protests (2019-2020), ongoing conflicts in the Middle East (Syria, Iraq, Yemen), Turkey’s earthquake and election cycles, and the Ukraine conflict have all caused some transient-increased demand for CBI programs.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Initially, CBI programs primarily attracted high-net-worth individuals seeking visa-free travel and increased global mobility. Today, the appeal of overseas CBI programs has broadened. More individuals are seeking secondary citizenship for personal or business security, political stability and economic opportunity. The motivations have diversified beyond just travel benefits. As the demographics, motivations and political environments have evolved, CBI programs have broadened to cater to a wider array of applicants. Some of the different types of investment immigration programs available today include:

• Residency by investment (RBI). RBI programs allow individuals to obtain residency status in a foreign country through significant economic contributions. These programs are often seen as a step toward full citizenship. Countries such as Portugal, Spain and Greece offer popular RBI programs, often referred to as "Golden Visa" programs, which grant residency in exchange for real estate investments, job creation or government bonds.
• Citizenship by ancestry. Some countries offer citizenship based on ancestry or descent. Individuals who can prove that their parents, grandparents or even great-grandparents were citizens of a particular country may be eligible for citizenship. This type of program is prevalent in countries that have experienced a broad dispersion of emigrants, such as Italy and Ireland.
• Retirement programs. Designed for retirees seeking a peaceful and stable environment or a new adventure, these programs offer residency or citizenship to individuals who can demonstrate a steady income or substantial savings. Countries like Panama, Malaysia and Portugal have retirement programs that attract retirees abroad with favorable tax regimes, lower cost of living and high quality of life.

Program expansions have made investment immigration accessible to a broader audience, each catering to specific needs and circumstances. The breadth of new opportunities and the intricate nature of CBI programs have also increased the importance of expert guidance. Modern advancements have streamlined the application processes for CBI programs. However, those advancements have also enabled more rapid changes in program benefits and regulations. Legal professionals now play a pivotal role in preparing and reviewing applications, ensuring compliance and providing expert consultation to facilitate smoother approvals.

Looking forward: Future of CBI programs

As CBI programs continue to evolve, several trends are expected to shape their future:

• Environmental and climate concerns. With increased awareness of climate change effects, along with increased regulatory efforts to combat it, there will likely be growing emphasis on CBI programs that help address environmental and climate-related issues. By incentivizing immigration through sustainable investment requirements, governments can contribute to the aim of reducing carbon emissions and transitioning to more environmentally friendly economies.
• Diversification of investment options. Investment options will diversify to compete for and attract a broader range of talent and achieve specific economic goals.
• Appeal to remote workers. The growing trend of remote work will make CBI programs more attractive to individuals seeking flexible living arrangements across borders.

The evolution of CBI programs has reflected changing global trends and the diverse needs of individuals seeking secondary citizenship. As global political and economic systems face new challenges, new opportunities will arise. CBI and related programs will continue to play a pivotal role in meeting the demand for global mobility and economic strategies.

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• Citizenship by Investment: The Shift From Passive to Active Investments
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• Dream of Working Abroad? Beware of Some Serious Financial Pitfalls

The rise of fintech investments

In recent years, there has been a significant increase in fintech investments, fueled by the potential of AI and Agile practices to transform financial services. The global market for AI in fintech is currently just over $44 billion and forecast to reach almost $51 billion in 2029.

The global financial services sector holds a significant weight in the S&P 500, with financials accounting for 13.12% of the index, as of April. Major players such as JPMorgan Chase, Mastercard and Berkshire Hathaway illustrate the sector's substantial market influence. McKinsey's analysis reveals that between 2017 and 2022, payment providers and investment banks significantly increased their earnings per share, underscoring the value creation and total return to shareholders in the fintech space.

Financial institutions are investing heavily in AI to improve CX and streamline operations. These innovations include digital payments, automated billing and seamless CRM integration.

Leveraging AI for enhanced CX

AI is a key component of modern fintech strategy, allowing financial institutions to provide tailored and efficient services. According to McKinsey, "AI high performers," organizations that derive significant value from AI, are integrating AI across various business functions, including product development and risk management.

AI applications in fintech include chatbots, biometric verification and automated self-service portals, all aimed at elevating customer experience. For example, AI-driven chatbots provide 24/7 support, resolving simple queries instantly and routing complex issues to human agents. This enhances CX and also boosts operational efficiency.

Driving transformation with Agile practices

Agile methodologies are critical in enabling financial institutions to respond swiftly to market changes and customer needs. By adopting Agile practices such as Scrum, Kanban and the Scaled Agile Framework (SAFe), banks can deliver incrementally and iteratively, which accelerates the product development life cycle. This is particularly effective in large-scale enterprise transformations.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

How to pursue Agile transformation

1. Assess your organization's Agile maturity. Conduct regular assessments to identify gaps in Agile practices. Consider evaluation factors such as responsiveness to change, Agile tools/practices followed and iterative delivery.  

2. Create Agile coaching and training programs. Implement tailored coaching to upskill your teams in frameworks such as SAFe, Scrum and the Spotify model. At TCS, we designed Living Agile, a work methodology to help employees embrace Agile as a lifestyle. This approach involves short, experiential mini-projects that can last up to three days. Agile coaches help groups of learners break down real-world problems and work in sprints as Scrum teams to achieve their goals.

3. Pilot your program. Identify pilot teams to implement Agile practices and then scale programs across your enterprise.

4. Measure your efforts. To gauge the effectiveness of your efforts, establish KPIs to measure the success of Agile initiatives. These may include mean time to recovery, mean time to market, customer satisfaction scores, user engagement and employee engagement, and flow efficiency.

Creating an Agile center of excellence

An Agile center of excellence (CoE) plays a crucial role in transforming teams to an Agile way of working, focusing on enhancing customer satisfaction and employee experience. Creating a CoE can help guide your teams and projects.

In my own experience, establishing a CoE in TCS Guadalajara has been instrumental. We focused on empowering our workforce, work centers and services to enable agility. The CoE improved our organizational efficiency and sped time to market. We delivered 80% of business requirements at 20% less cost, with high customer satisfaction.

Benefits of investing in CX

Investing in customer experience has various advantages, including the potential for enhanced customer loyalty, more revenue and a stronger competitive position. According to McKinsey, banks that prioritize CX transformation may find improved customer lifetime revenue and increased upsell and cross-sell potential. Furthermore, Agile and AI-driven CX strategies allow banks to anticipate consumer demands and provide personalized solutions.

The global financial services sector is expected to continue growing from emerging markets such as India, which is projected to grow 6.3% in 2024.

Focusing on CX can help financial institutions maintain a competitive edge in this evolving landscape.

Integrating embedded finance

Embedded finance integrates financial services such as payments, lending and insurance into non-financial platforms. By embedding financial services directly into platforms consumers use daily, such as retail apps and online marketplaces, businesses can offer seamless and personalized financial services elevating CX and making financial services more accessible and efficient. It drives significant value for both consumers and businesses, ultimately leading to increased revenue and stronger customer relationships.

Challenges and future outlook

While the benefits of integrating AI, Agile methodologies and embedded finance are clear, financial institutions face challenges in scaling AI and Agile initiatives. Key issues include data security, regulatory compliance and the need for robust infrastructure to support these advanced technologies. 

AI and Agile methodologies also pose a challenge in maintaining the human touch essential to client relationships in financial services. According to Deloitte, "The most successful CX leaders will likely be those who can use AI to enhance a human-centered customer experience." This involves equipping client-facing professionals with data to provide more human interactions, personalizing service interactions and being transparent with clients about AI use.

Despite these challenges, the future of financial services will be shaped by the integration of AI and Agile practices, driving unprecedented levels of innovation and customer satisfaction. As digital transformation continues to evolve, AI and Agile methodologies will remain at the forefront of strategic priorities for financial services leaders in 2024 and beyond, enabling them to meet evolving customer expectations and maintain a competitive edge in the market.

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And while there are some habits you may be able to identify for yourself, there are others financial experts wish people would give more thoughtful consideration. Here, 11 members of Kiplinger Advisor Collective discuss some of the most important money habits they think more people should cultivate and why they’re so essential to building true wealth throughout your life.

Think beyond your lifetime
“Think beyond your lifetime in terms of multigenerational financial planning with strategic money decisions and financial investments. A healthy habit of wealthy individuals and their families is thinking about legacy benefits to pass down to their children, from real estate property to unique assets that are a lifelong gift, like a second citizenship. An investment should have various benefits.” — Jean-Francois Harvey, Harvey Law Group

Save for retirement as soon as you start working
“The most important money habit I wish more people would cultivate is to start saving for retirement as soon as they start working and not wait until their 30s. Life expectancy is increasing, which means that the retirement period will be a lot longer for those starting to work today, and they will need to save more for their retirement.” — David Silversmith, Eisner Advisory Group LLC

Learn to negotiate
“Negotiating is a one-two punch that helps you earn more and save more. If you avoid asking for what you want because it's uncomfortable, you also leave a lot of money on the table over your lifetime. I advise starting small, like haggling with your cable company, then working up to the bigger stuff, like your salary. The more you do it, the easier it gets, and that's when the fun begins.” — Kiersten Saunders, rich & REGULAR

Pass along your knowledge
“I think an important money habit for people to cultivate is to pass along their knowledge to the next generation. It’s crucial for young people to have the basic money management skills needed to flourish when they turn 18. It’s not uncommon for young adults to go into debt due to the fact that basic money management skills weren’t something they had to learn early on.” — Justin Donald, Lifestyle Investor

Trust yourself and what's right for you
“I wish people would cultivate self-trust around money decisions. There's so much noise from financial media and experts telling you what you ‘should’ do, but most of these people don't know your life and just leave you feeling shame for your choices. Use a mindfulness practice to tune into your needs and follow your gut when it's time to make a spending or financial decision.” — Dana Miranda, YOU DON'T NEED A BUDGET

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Put your savings goals first
“This is a simple one: Pay yourself first! If you automatically save 10% to 20% of your income each month prior to it being in your account for spending, you will create savings and wealth over time. If you spend first and then try to save what is left at the end of the month, there will be nothing left.” — Ronald Gestiehr, Lifetime Financial Growth

Diversify and multiply your income streams
“I wish people would break the habit of being overly reliant on one income stream, which is often from one paycheck by a single employer. I would love more people to shift their mindset to one that supports diversifying and multiplying income streams. This means understanding the differences and importance of having both active and passive income streams.” — Jason Vitug, Phroogal

Get comfortable talking about money
“The most important money habit I wish people would follow is to feel more comfortable talking about money. It is true that money means different things to different people, and for some people, the topic of money can cause heart palpitations. I recall my dad's philosophy from when I was a child: ‘Just because we don't deal with a particular challenge or problem doesn't mean it will go away.’” — Marguerita Cheng, Blue Ocean Global Wealth

Keep track of your expenses
“I wish more people would keep better track of their expenses. This would allow them to know what they are spending and where, and it usually leads to a person making an effort to cut back on those expenses once they see what they are actually spending on said things. It can be an eye-opening shock!” — Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management

Set up consistent retirement contributions
“One item I advise clients about that does not always get done is setting up a consistent contribution to their retirement plans. To do this through any retirement plan is fairly easy. This type of habit can be life-changing because of the compounding effect that can be realized through a consistent amount contributed over time.” — Mario Hernandez, Longevity Wealth Management

Avoid lifestyle inflation
“People are tempted to spend on luxury items and lifestyle upgrades as their income increases. Avoiding lifestyle inflation by keeping expenses in check and maintaining a modest lifestyle ensures that the additional income is directed toward savings, investments or paying off debt, leading to better long-term financial health.” — Manoj Kumar Vandanapu, UBS AG

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However, certain developments in the law combined with the advent of Airbnb- and Vrbo-related sectors can result in losses from rental real estate being characterized as nonpassive and, thus, being available to offset nonpassive income. For this to happen, the taxpayer must “materially participate” in the activity, and the activity must not be treated as a rental activity. 

Know the rules

Regulations issued under the passive activity rules provide that a taxpayer materially participates if he/she: 

• Engages in the activity for over 500 hours during the year.
• Participates in the activity for the taxable year and their activity constitutes substantially all of the participation in such activity of all individuals for such year.
• Participates in the activity for over 100 hours during the taxable year, and such individual’s participation in the activity for the taxable year is not less than the participation in the activity of any other individual for such year.
• Engages in a significant participation activity for the taxable year, and their aggregate participation in all significant participation activities during such year is over 500 hours.
• Materially participated in the activity for any five taxable years (whether or not consecutive) during the 10 taxable years that immediately precede the taxable year.
• Engages in a personal service activity, and the individual materially participated in the activity for any three taxable years (whether or not consecutive) preceding the taxable year.
• Based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous and substantial basis during such year (i.e., over 100 hours).
  

However, an activity is not treated as a rental activity if:

• The average stay of a guest is no more than seven days.
• The average stay of a guest is 30 days or less, and significant personal services are provided by or on behalf of the owner on par with the services a hotel would provide.
• Extraordinary personal services are provided by the owner (i.e., services that are not incidental to the property).
• The rental of the property is treated as incidental to the nonrental activity of the owner.
• The property is available during business hours and is not exclusive to any one guest.
• Any part of the property for use in activities conducted by a partnership, S corporation or joint venture in which the property owner has an interest is not a rental activity.

To deduct otherwise passive losses against nonpassive income, the landlord must satisfy at least one of the material participation tests and one of the exceptions to rental property treatment. Most Airbnb landlords can meet the second or third items of the material participation tests and the first exception above.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Don’t forget depreciation

Most people do not realize that their short-term rentals can reduce their tax liability while simultaneously earning them extra cash. This is because of the depreciation deduction, which does not require a corresponding outlay of cash. A taxpayer is not allowed to deduct in one year the entire cost of the short-term rental property but must instead recover the cost of the property over several years. Depreciation deductions can turn rental profits into tax losses. Because a short-term rental period is usually 30 days or less, the IRS classifies it as a commercial property with a depreciation period of 39 years.

Depreciating property over 39 years doesn’t yield a big annual expense (about 2.5% of the cost each year). However, there are ways to accelerate the depreciation deduction and, thus, increase the annual expense. The landlord can arrange for a cost segregation study. Such a study reclasses a portion of the real property into assets that have shorter depreciable lives, which results in an increased depreciation expense and bigger tax savings for the property owner.

Track your expenses

The landlord must learn which expenses are deductible and keep track of them. Allowable tax deductions include mortgage interest, property taxes, travel and transportation expenses to and from the property, maintenance and repairs, utilities, legal and professional fees, insurance premiums and more.

Keeping track of expenses is necessary to maximize the tax savings. Using bookkeeping software or keeping a spreadsheet of income and expenses is a good practice. Or simply get a separate credit card and use it only for the expenses having to do with the rental property. At the end of the year, your accountant can take the credit card’s annual summary to complete the tax return.

Short-term rental properties can be profitable from both a business and tax perspective. However, it is important to follow all the necessary rules and methodically keep track of income and expenses. One should always consult with a tax adviser to determine if this process is a good fit.

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This can be as simple as an online banking portal and as complex as a cryptocurrency exchange. The critical element that makes fintech so important to 21st-century consumers is that it makes financial services faster, more accessible and easier to understand.

Let’s examine the rise and benefits of innovative fintech solutions and how this burgeoning area of the tech sector can impact your wealth and money management in 2024.

The rise of fintech: Why has fintech exploded in recent years?

Technology isn’t new. Even modern tech has a track record that stretches back decades. So, why has fintech become so crucial in the past 15 years?

While applying technology to finance has been a practice since the mid-20th century, these developments occurred in the finance sector’s back end. Consumers weren’t privy to the changes until the turn of the century. 

It wasn’t until the advent of smartphones that financial technology experienced what Columbia Business School calls a “Cambrian explosion of innovation in Fintech.” Once available, fintech rapidly developed to meet the evolving needs of consumers in a digital age. 

In the years since, traditional financial institutions have struggled to keep pace with the change, opening the door to various independent, nontraditional innovation opportunities. Some of these are simple solutions, while others have created new worlds in consumer finances. Let’s take a look at some examples.

How fintech makes finance easier and more accessible

It’s difficult to summarize how much fintech has revolutionized finance. On the one hand, simple day-to-day personal finance has become much more manageable. 

You can now remotely manage your money using tools and applications such as online banking portals and banking apps. Digital wallets give you instant access to cash on the go. You can even directly deposit your paycheck, use bill pay to automate your payments and deposit checks from anywhere using your smartphone.

At the same time, there have been more dramatic changes. Online brokerage platforms let you invest in stocks in just a few clicks. Robo-advisers automate investment management. Cryptocurrency offers alternative investments to fiat currency. Crowdfunding and peer-to-peer lending have also allowed consumers and businesses to cut out the middleman of traditional financial institutions.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Understanding the benefits of fintech

It’s fascinating to see all of the ways fintech is rewriting personal and professional finance. But what are the tangible benefits that these innovations offer? Here are a few of the top benefits that come with fintech:

• Convenience. I’ve already touched on this one, but it’s hard to overstate. Fintech’s most vital attribute is making finance quick and easy for the average person.
• Accessibility. Fintech’s digital nature makes it easy to access from anywhere. Along with helping consumers access and manage money already, this has incredible potential to continue helping unbanked or underbanked populations improve their economic status.
• Loyalty. Fintech doesn’t just save extra steps and fees. It is allowing consumers to rebuild a system of peer-to-peer trust and loyalty. Both attributes are core philosophies at my fintech firm, Fintech Finance Group.
• Cost. Fintech cuts out much of the work and needs of traditional banks, brokers and other financial intermediaries. This can dramatically reduce the cost of doing business.

Fintech already offers many benefits, and many more will doubtlessly emerge as this area develops.

Using fintech to master your money in 2024

Fintech is rewiring the financial world. It is decentralizing finance and improving money management in ways that weren’t imaginable a quarter of a century ago.

While already a force to reckon with, fintech is still evolving. Given its impressive capabilities and influence, it’s hard to imagine that we’ve only scratched the surface of this synergistic combination of finance and technology.

With that in mind, make sure to continue to educate yourself. Always look for safe, fresh ways to leverage fintech as you manage your finances, cultivate wealth and establish greater financial security for you and your loved ones.

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But while the office sector has struggled since the pandemic, other areas of commercial real estate show promise.

Why the office sector continues to struggle

In a nutshell, the fall from grace of office space stems from the convergence of several factors. The pandemic changed work-from-home habits via technologies such as Zoom and Google Meet. Artificial intelligence has also started to reduce the need for certain types of white-collar workers.

Although people have long since returned to the office, millions of workers maintain the WFH lifestyle to enjoy more time with their families absent the long commutes to and from work. Even many companies that asked their employees to return to the office have mandated that only part of the workweek needs to be spent there, with the rest of the week taking place in a WFH setting. 

This has pushed the U.S. vacancy rate for office space to 17%, which is higher than during the global financial crisis. If before they needed to host the full workforce in that office, now maybe only a third or less are in the office at a given time. Since economic conditions are also currently murky, many companies have seized this opportunity to cut their costs and reduce their office space requirements.

This has meant that developers who took out a loan for that office space now have to contend with less than their projected income from leases and rentals. They also have to contend with higher interest rates. Hence some have actually thrown in the towel and sold at a loss or have just returned the keys to their lenders. 

This has cast a pall over the CRE sector, since many of its glamor projects are in the office sector. Although many Fortune 100 companies and high-profile professional firms in the law and architectural space still spend for slick new ESG-compliant Class A office space, the problem lies in the older office spaces built decades ago that are no longer as attractive to companies. A lot of banks and other lenders, as well as many investors, still hold these older problematic office spaces in their books.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Areas of promise in CRE

Conditions, of course, depend on the location, type and class of property since real estate is still a game of supply and demand. If too few leasers are chasing too many office spaces, the outlook is bleak. But if an area’s demand for office space outstrips the supply, then the situation there is good.

A few bright spots still exist in CRE, though. As a real estate investor, these are the CRE areas I find promising:

• Office to residential. In some situations, office spaces can be converted into residential units. Often, however, it is simpler to just demolish the old building — unless it is culturally significant and still has visual appeal — and just start from scratch.
  
  Issues with converting office space include adding separate plumbing, sewage and HVAC provisions for each unit. There is also the question of natural light availability, since office floor spaces can be huge with no window access or natural light in the center. There are also zoning restrictions. All of these problems can be solved with money, but again sometimes, it is not worth it.
  
  Generally, office-to-residential conversions make sense only if the eventual buyers are wealthy enough to buy large floor footprints.
  
• Data centers. Data centers, which house computer servers running the internet’s content needs, are in demand. As brick-and-mortar retail, for example, transitions to online shopping, then more servers are needed to handle demand. Having a data center in an area with heavy demand also speeds up the application. The growth of artificial intelligence is also driving demand for data centers. 
• Warehouses. While retail stores in certain areas have become popular again, the rise of online retail is undeniable. Some companies such as FedEx, Walmart and Amazon have national warehouses. However, in certain instances, the cost of fuel or issues with delivery services can sometimes justify a small warehouse in certain areas to place certain items near their target buyers. These warehouses can oftentimes feature the latest technologies, such as sorting robots and blockchain-based data tracking. As online retail grows, so does the warehouse sector.
• Multifamily dwellings. As prices for standalone houses and lots have risen, some families opt to live in multifamily properties for the security, convenience and amenities.  
• Special purpose. Sometimes a piece of land that is properly developed is all it takes for someone to derive income. These include open parking lots and garages, golf courses and the like. Note, however, that this is still location-dependent as some areas may exhibit growth, while others show decline.

CRE may have its problematic areas, such as the lower-grade office spaces in certain cities where there is an oversupply, but reports of its demise may have been overstated, in my opinion. CRE meets many needs, and I expect the areas above to be promising for years to come.

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Following are some of my top takeaways from three decades of investing:

'When the facts change, I change my mind'

This quote, often attributed to John Maynard Keynes (though he likely didn’t say it), is a reminder of the importance of adapting to changing circumstances. For example, in January the consensus forecast was that the Fed would cut rates six times during the year. That forecast was predicated by an economic outlook featuring slower growth, rising unemployment and inflation falling closer to the Fed’s 2% target.

However, the facts supporting the start-of-year consensus changed, with economic growth, employment and inflation all meaningfully higher than expected, making it less likely that the Fed would cut interest rates aggressively in 2024.

Some investors were faster to adapt to the changing environment, revising their forecasts and portfolio positioning accordingly. Investors who stubbornly clung to the hope of rate cuts were slower to adjust their expectations, with negative portfolio consequences.

Reaching for yield is usually a bad idea

In a meeting early in my career, a corporate CFO questioned the logic of risking his career to seek a quarter-percent higher yield on the company’s short-term investments. That simply stated advice has stayed with me, as I’ve seen investors lose money by taking unnecessary risks to gain a relatively small amount of incremental yield. The low-yield environment made it particularly tempting to reach for yield in the years following the global financial crisis.

Higher-yielding investments may have a portfolio role, but investors should do their homework to assess the viability of bond coupon payments and principal repayment before investing. Equity investors seeking dividend yield should do similar work, evaluating the sustainability of current dividend payments (which are not guaranteed) and the valuation for the stock and the prospects for growth.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more > 

Don’t blindly follow someone else's investment ideas

I worked for a firm in the 1990s that invested in many privatizations of government-owned companies outside the United States. In reviewing a privatization of a telecommunications company, we identified multiple investment red flags, including shortcomings in corporate governance structure, problematic related-party transactions and an unstable regulatory framework.

The firm’s analyst proposing the investment dismissed our concerns, citing the involvement of a prominent investor as validation of the privatization opportunity. The prominent investor, however, had more favorable deal terms, including a far lower acquisition price and preferential liquidity terms. The prominent investor took far less of a loss a few years later when the stock price of the telecommunication company collapsed.

It can be tempting to invest based on cocktail party chatter, memes or social media posts, but the odds of sustainable investment success are low for investors who blindly follow others.

It pays to think about what could go wrong

Most investors focus on the positives when researching a new investment idea, creating a thesis around what they expect to happen with the stock. I’ve spoken with legendary investors who balanced the inherent optimism of that approach with the use of an investment “pre-mortem” before buying new stocks.

In a pre-mortem, the investor assumes that at a predetermined future date, an investment will have become a failure. The investor uses the pre-mortem to identify reasons why the decision might not work, which can help identify potential flaws in the investment thesis or future signals that would reveal signs of trouble for the investment.

Investors who allow for the possibility of failure will be better equipped to avoid making bad investments, or to more quickly identify when an investment isn’t working and should be sold.

Seek those who have advice on how to be a better investor

The airwaves and bookshelves are filled with advisors discussing what investors should think, or sharing tales of investment success. Investors may learn more from those who offer advice on how to become a better investor. My thinking about investments has been influenced by thought leaders such as Howard Marks, Warren Buffett, Daniel Kahneman, Michael Mauboussin, Seth Klarman and Philip Tetlock. Seeking insight into how to invest is likely a more productive endeavor than listening to war stories about someone’s recent investment win.

Investing is a continuous learning process, and this is by no means a complete list. That being said, I hope these lessons from my own experiences provide some practical guideposts as you proceed through your investment journey.

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Whether it’s generating additional income, taking a DIY approach or contributing toward your goal first before buying any extras, there are ways to make saving a much easier, faster process. As financial experts, the members of Kiplinger Advisor Collective have years of experience helping others achieve their financial goals. Here, they offer seven smart tips you can leverage to reach your savings goal and start enjoying your purchase as soon as possible.

Focus on making it fun
“To make saving up for a large purchase easier and quicker, make it fun. Break it into digestible chunks so that you can track your progress. Seeing progress will motivate and reward you on an ongoing basis. Remember, the journey is usually the most fun — not reaching the goal itself. Once you've reached the goal, you must set the next goal.” — Deborah W. Ellis, Ellis Wealth Planning

Find ways to make additional income
“If you have a small salary, saving money in a bank might seem like a good idea. Unfortunately, if inflation is high, your bank savings actually gets devalued over time. If you want to save for a large purchase, consider a side hustle to make additional income. Also, investing in risk-on assets like stocks and crypto, especially during bad days, may also help.” — Zain Jaffer, Zain Ventures

Save any 'found' money
“The first step in reaching a savings goal is to set up a separate savings account and title it accordingly. Then, it's vital to have automatic savings deposits made each and every payday. To accelerate reaching your goal, save your ‘found money,’ which is money from rebates, tax refunds, bonuses and also side hustles.” — Jason Vitug, Phroogal

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Take on projects yourself
“Invest time in learning how to do things yourself instead of paying for services. For instance, learn basic car maintenance, home repairs or how to cook meals at home. The money saved from doing these tasks yourself can be substantial and can contribute to your major purchase fund.” — Manoj Kumar Vandanapu, UBS AG

Save toward your goals, then live off the rest
“Figure out how much you want to save toward your goal first — then do it. It's like the concept of paying yourself first before spending. Here, save for the goal or goals, and then live off the rest. If you need to adjust, that is OK. At least this way you are putting your goal or goals ahead of random frivolous spending.” — Bob Chitrathorn, Wealth Planning By Bob Chitrathorn of Simplified Wealth Management

Cut out unnecessary expenses
“Do a deep dive into your budget and cut out unnecessary expenses. Then, set up an automatic withdrawal from your checking account for the discretionary income and put it into a short-term investment vehicle to help you quickly save up for your goal.” — Louis Barajas, International Private Wealth

Set up an automatic savings plan
“One effective way to save for a large purchase is to automate your savings. Set up a dedicated savings account and arrange automatic transfers on each payday. This ‘set it and forget it’ method makes saving effortless and accelerates the process by consistently building funds without requiring active management.” — Stephen Nalley, Black Briar Advisors

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1. Assess the current financial situation.

You should start by thoroughly assessing the company’s current financial situation. This involves reviewing all financial statements, including the balance sheet, income statement and cash flow statement.

Example: If your company is experiencing a significant decline in revenue, a detailed review might reveal that certain products are underperforming. By identifying these weak points, you can decide whether to discontinue these products or find ways to boost their sales. This helps you understand the financial health of the company, pinpointing areas that need immediate attention.

2. Identify key areas for cost reduction.

Leaders should always pinpoint important areas where expenses can be cut without sacrificing the company's essential functions. This might involve cutting nonessential expenses, renegotiating contracts or finding more cost-effective suppliers.

Example: A manufacturing company might find that switching to a different supplier for raw materials could save 15% on costs, which can then be redirected to more critical areas of the business. Cost reduction can free up cash flow, allowing the company to invest in areas that will drive recovery and growth.

3. Prioritize spending on high-impact areas.

You should prioritize spending on areas that have the highest impact on the company’s recovery and future growth. Allocate resources to projects and departments that directly contribute to revenue generation and operational efficiency.

Example: If a tech company identifies that its research and development (R&D) department is crucial for developing new products that could boost future sales, the budget should prioritize funding for R&D over less critical areas. Focusing resources on high-impact areas accelerates recovery and positions the company for future success. 

4. Create a realistic revenue forecast.

Leaders should always create a realistic revenue forecast based on current market conditions and historical data. This forecast should be conservative to avoid overestimating potential income.

Example: A retail company might analyze past holiday sales trends and current economic conditions to project future revenues accurately. This conservative approach helps in creating a buffer against potential shortfalls. Accurate revenue forecasts enable better planning and resource allocation, reducing the risk of financial shortfalls. 

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

5. Develop a cash flow management plan.

You should develop a detailed cash flow management plan to ensure the company can meet its short-term obligations while working toward long-term stability. This involves projecting cash inflows and outflows and maintaining an emergency reserve.

Example: A service-based company might set aside a portion of its revenue during peak seasons to cover payroll and rent during lean months. Effective cash flow management ensures the company can meet its financial obligations and avoid liquidity crises. 

6. Set clear financial goals and benchmarks.

Leaders should always set clear financial goals and benchmarks to measure progress and adjust the budget as needed. These goals should be specific, measurable, achievable, relevant and time-bound (SMART).

Example: A company might set a goal to reduce its debt by 20% over the next year. Regularly tracking this progress helps in staying focused and making necessary adjustments to the budget. Clear financial goals provide direction and motivation, helping the company stay on track toward recovery. 

7. Communicate the budget plan effectively.

You should communicate the budget plan effectively to all stakeholders, including employees, investors and creditors. Transparency is crucial for gaining support and ensuring everyone understands their role in the company’s recovery.

Example: During a company-wide meeting, the leadership team might present the budget plan, explain the rationale behind each decision and outline the expected outcomes. This helps in aligning everyone’s efforts toward common goals. Effective communication builds trust and ensures everyone is working toward the same objectives. 

8. Monitor and adjust the budget regularly.

Leaders should always monitor the budget regularly and make adjustments as necessary. The business environment is dynamic, and staying flexible with the budget allows the company to respond quickly to changes.

Example: If a new competitor enters the market and affects sales projections, the company should be prepared to revise its budget, perhaps by increasing marketing spend to maintain market share. Regular monitoring and adjustment of the budget ensure the company remains responsive and adaptive to changing conditions. 

Conclusion

Creating a strategic budget for a distressed company is a challenging but essential task. By following these eight steps — assessing the current financial situation, identifying cost reduction areas, prioritizing high-impact spending, creating realistic revenue forecasts, developing a cash flow management plan, setting clear financial goals, communicating the budget effectively and monitoring and adjusting the budget regularly — you can steer your company toward recovery and long-term success. 

Each step provides a clear pathway to stabilize the company’s finances, enhance operational efficiency and build a foundation for future growth. Ignoring these steps can lead to continued financial struggles and, potentially, the failure of the business.

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