By Gail Wilson.
For small businesses, reaching their fifth year of operations may seem like a journey. Based on statistics, only 3% of business ventures make it to their fifth year. If you are a start up business owner, your dream is to operate longer than five years. You want your business to thrive and grow.
Your business operations are going smoothly now, but have you ever considered preparing for the future? Have you thought of the possibility of going bankrupt? Filing for bankruptcy in business may be one of the most embarrassing things a business owner can do; however, it can be avoided.
Reasons Why Businesses Go Bankrupt
Most business that filed for bankruptcy suffered the following:
- Poor management skills. A manager creates the atmosphere in the workplace. He or she helps in growing the venture. However, incompetent managers create problems for the business. They affect your employee turnover, reduce your business’ productivity and eventually lead to your business’ bankruptcy.
- Undercapitalization. Businesses that operation with limited capitalization tends to go bankrupt. They are not able to fund their daily business operations due to lack of funding.
- Lack of direction. Businesses that lack a purpose do not usually thrive in their respective industries. If you as a business owner do not know where you want to direct your business, your employees will also have a hard time following through. If you do not have a direction, you are merely operating blindly.
- Improper use of funds. Fund Management is an integral part of a business. If it falls into the wrong hands, the company can go bankrupt. You may have a lot of investors, but your if your cash flow is not managed correctly, your business will fail.
Ways to Reduce Bankruptcy Risk
Preparation is better than dealing with problems as they happen. Minimizing your risks of bankruptcy is ideal, as it allows you to be ready for your business’ future. Reducing your business’ exposure to going bankrupt can be lessened through:
- Having an updated business plan. Many entrepreneurs fail to see the importance of a solid business plan. Businesses fail because their business plan is outdated. This simple document can help your business grow as it helps you stay focused. It directs your venture to your goals. The production, marketing activities, overhead expenses, product pipelines, and diversification are all scheduled in the business plan.
- Prioritize paying off your creditors. Debt is a part of business life. There will come a time when a business owner has to borrow money from creditors to support his or her business. There is nothing wrong with this kind of practice as long as you can pay them back. Prioritize your creditors before other expenses to avoid incurring more interest and to avoid damaging your credit score.
- Practice proper fund management. Correctly managing your funds is essential for your business to thrive. You can try the following steps to control your business’ cash flow accurately:
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- Reduce costs. Remove all unnecessary expenses. This measure includes your regular trips to expensive coffee shops, overspending on gym memberships, paying for a magazine subscription, and others. You can also switch to a supplier that offers better deals without compromising the quality of your products or service. These costs may seem little to you, but once accumulated, they can cost a lot.
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- Set budgets. Every spending should have a budget. Gone are the days when the sky’s the limit whenever you purchase something for your business. Before acquiring something, plan your spending and stick with the allocated budget.
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- Hire competent people. It is not enough to employ people. When you hire employees, they should be able to add value to your company. They should have the qualifications for the job. Competent people have the skills and the drive to aid your business’ growth.
- Sell unused business assets. Do you have a fax machine sitting on your desk for years? Do you remember that printer in the corner of your office? Are you still keeping that empty warehouse? Unused assets do not help the business. They incur depreciation costs but do not contribute to the venture. Sell assets you no longer use to add more money to your cash flow. If you have an empty warehouse, you can opt to sell it or rent it out.
- Increase your revenues. Your profits fuel your business. Therefore, it is only logical to increase them to avoid bankruptcy. You can increase your earnings through:
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- Keep up with the market trends. Market trends are always changing. Consumer needs are never constant. As business owners, you must learn to anticipate change. You should keep up with the changing consumer demands to survive the competition.
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- Tap the right consumers. Market your products or services to the right consumers. They will purchase your product or service because they need it.
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- Innovate. Innovation is key to staying in the competition. The most innovative products that can cater to consumer needs are the ones who always survive.
You can avoid bankruptcy as long as you know what you are doing. Believe in your business goals, and you will survive for a long time. You can also consult with a lawyer with experience in bankruptcy cases to seek legal advice on the matter.
There are actually three types of bankruptcy your business cna acquire. And if you believe your business can still pay its debts in the future, you should opt to file for Chapter 13 bankruptcy. If you want to know more about Chapter 13 bankruptcy and how an attorney can help you in the process, you can click here.
About the Author.
Gail Wilson has more than 12 years of experience under her belt when it comes to business, which she is currently sharing with her clients and peers as part of the law industry. She writes pieces on various law topics that she hopes could help the common reader with their concerns. A family oriented, Gail loves spending time with her husband and two sons during her free time.
