What generally causes a business to enter financial distress?

A business typically enters financial distress when it has high levels of debt relative to its earnings and cash flow. This situation creates a scenario where the business struggles to meet its financial obligations, including loan repayments and operational costs. High debt levels can arise from various factors, including aggressive expansion or adverse market conditions, leading to a situation where the company's liabilities significantly exceed its ability to generate income.

When a business is burdened with heavy debt, its cash flow can become constrained, leaving it vulnerable to fluctuations in revenue. This can lead to challenges in fulfilling existing obligations, which can spiral into more severe financial problems, such as bankruptcy or insolvency if not managed properly. The other options, while they can influence a business's operations, do not inherently lead to financial distress in the same way that excessive debt does. For instance, excessive marketing expenses might impact profitability but are less directly linked to financial distress compared to unsustainable levels of debt.