5 Ways to Avoid Bankruptcy for Your Business
Photo by Karolina Grabowskafrom Pexels
By Maggie Bloom,
Starting a business can be very stressful, and filing for bankruptcy is even more disappointing. Whether or not your business is struggling, the pain from trends in bankruptcy is felt by all the companies. As a business owner, it's essential to act fast and cushion your entity against going bankrupt.
1. Prioritize debt repayment and Be ConservativeMany businesses tend to borrow more money than they can repay which in turn, it gets them into trouble as the repayment period approaches. As a business owner, it is more advisable to steer clear of borrowing, which saves you from over-extending. Prioritizing debt repayment is also another way that keeps from over-extending. While assessing your strategies for debt repayment, low-interest debt and secured debt should be your priorities. Unsecured debt should always be avoided and go for favorable repayment terms in loan financing. Also, do not make assumptions regarding your customers or business. Avoid taking unnecessary risks as it may result in eventual bankruptcy for your business. Always have a backup plan for worst-case scenarios. Don't be over-optimistic and assume that all your customers will always stay or pay. The most prominent entrepreneurs in the world take mitigated risks and ensure their businesses are cushioned.
2. Talk to your lendersCommunicate and respond to your lenders, especially if running the business becomes more stressful. It aids in not raising alarms when you are late for payment or skip a payment. The best way to deal with the situation is to respond to the lenders or set up a meeting and explain your shortcomings. However, if your business is bankrupt, you might consider getting a consumer proposal that will help renegotiate your repayment terms. Also, you can set up a meeting with the lenders and try to extend your loan repayment time or get a new repayment plan.
3. Create an effective Business PlanUnfortunately, some businesses don't have a written business plan. In most cases, the company began as a small start-up; therefore, the business owner doesn't see the need to have a business plan. But as the business grows, the owner might find themselves not meeting their goals or objectives. Having a business plan is very important as it outlines its strategy, its long-term goals, and what they plan on achieving at a particular point. A business plan also helps the employees stay focused on what matters and set their minds to attain its goals and objectives. Lack of planning may result in bankruptcy or insolvency of the business since there isn’t an end goal.
4. Evaluate insurance policies and assess unnecessary expensesRequest monthly statements and revise them to make sure money is spent on necessary expenditures. If there are unnecessary expenditures or reoccurring charges in your account, develop a plan to eliminate them.
In many businesses, insurance is a significant expense. Insurance premiums keep increasing every year, causing the business to channel more money towards policy payments instead of investing the money elsewhere. Thus, it's essential to discuss how to get better policies that favor your business with your insurance agents. Life policy is one of the available options to consider since it allows you to borrow against its cash value.
5. Have a Retirement Strategy and take advantage of Tax ReformCreating a retirement strategy is as crucial as writing a business plan. It's critical to choose your successors earlier to ensure a smooth transition. Ensure that the succession plan has a funding source or create a strategy to fund it. It's also important to liaise with professionals or lawyers to ensure a well-crafted plan is in place. In addition, tax reform allows businesses to use the unused money from tax savings to repay their debt or add on to their cash flows.
Running a business can be pretty tiresome and requires a lot of patience. Always have discussions with your employees about your objective’s goals, take calculated risks, and, if necessary, make significant decisions that will steer your business forward. Ensure your employees are focused and happy in the job environment. Seek professional help and maintain good relationships with lawyers and accountants, as they may help you come up with great strategies, make better decisions, or avert bankruptcy.
Back To News