Business owners and entrepreneurs often have plenty of different things to deal with daily. With their emotional and financial investment level, they may end up in bankruptcy without being entirely aware of the circumstances. While filing for bankruptcy can help gain financial relief, it can be the lowest point for any business owner. When you don’t file for bankruptcy, you can still manage to get out of it.
Are you headed towards bankruptcy or just want to be cautious to avoid it? Dive right in to find out strategies to avoid bankruptcy in business.
How can you avoid bankruptcy in business?
Whenever a business faces a crisis, they tend to look for all available options to get out of it. Among the plenty of ways available, bankruptcy is the most definitive and drastic one. Due to this, most business owners try to avoid reaching that stage. Here are five ways that can help you stay afloat:
1. Recognize the problem
Every entrepreneur likes to keep an optimistic stance when dealing with business decisions. But, in certain situations, it becomes imperative to realize that things aren’t running smoothly. The first step to solving a problem is recognizing that it exists in the first place. One such indicator of financial troubles can be consistently negative cash flows. Once you identify the issue, you can decide whether you are in a position or even willing to save the business or not. Then you can start taking action on how to protect your business from slowly inching towards bankruptcy.
2. Eliminate non-essential expenses
If you think there is a chance of bankruptcy, you need to scrutinize your budget. It will allow you to analyze the costs and identify any non-essential expenses you can cut down. These expenses can be:- Unnecessary travel expenses
- Off-site team events
- Employee lunches
- Employee gym membership
- Company cars
- Office improvements
If you think these expenses affect your business’s budget, you must find ways to nix them or at least lower them. You can calculate the savings to assess how much you can save. A little financial restructuring will help you a long way in avoiding bankruptcy. If you’re having trouble with identifying expenses or carrying out financial reorganization, you can seek the help of an adept bankruptcy lawyer.
3. Prioritize debt repayment
Among the plenty of reasons responsible for a business’s bankruptcy, the most prominent one is debt. The ideal way to avoid this is to prioritize debt repayment over everything else. In simple terms, it means to identify which bills you may pay first and in which order. Regardless of the financial status, there are a few debts that you must repay on time to keep your business safe.You must prioritize repaying secured debt like loans secured by any equipment and debt that comes with a high rate of interest. If possible, you can avoid unsecured debts such as credit cards altogether. Make sure you try to negotiate the best settlement terms in case of loans to help you with the financial crisis.
4. Assess the assets
The next thing you must do to prevent bankruptcy is analyzing the assets of the business. When a company is operating for a long time, there will be plenty of assets that you own but no longer use. If you find such transferable assets that you are no longer using, it would be an ideal time to sell them.You can find an identical company that will be interested in buying the asset. Liquidating the assets will help you save yourself and the business from bankruptcy. Make sure you also consider the impact of dispensing with the assets before you liquidate them.
5. Revise your business plan
Most businesses tend to start at a microscopic scale, and the business plans exist solely inside the founder’s mind. While the business keeps growing, they still lack a written plan, even though there is a need for one. Whether you have a written business plan or not, now would be an ideal time to work on it. Even though the initial plan helped you get the venture started initially, it might not serve its purpose in the present time.You can revise and rewrite the business plan as the financial situation keeps on changing. The plan must include enterprise strategy, marketing, sales plan, capital expense budget, cash flow projections, and operating plan. Your aim must be to keep the business plan fresh and updated to mitigate debt and avoid bankruptcy.
