5 Ways Small Businesses Can Avoid Bankruptcy
Life in business can be tough. From growing pains to investment headaches, growing and developing a company is far from easy sailing.
And while, in those heady start-up days, you probably didn’t pay much attention to the financial side of things, the idea of debt and bankruptcy seemed either like it would never ever happen or, if it did, you’d cross that bridge when you came to it.
But life in business is far from simple. The unpredictability means that you can go from smooth water to stormy seas in a heartbeat. But don’t let debt catch you offguard. If the worst is to happen, it is crucial you have plans in place to manage it. Here are five ways small firms like yourself can reduce their debt and avoid bankruptcy.
Strike out non-essential expenditure
In our personal lives, many of us are paying for products and services we don’t really use – be they gym memberships or subscriptions to music and TV streaming services.
The same is true in the business world. “Nearly all companies will, at some level, be dishing out cash for things they simply do not get value from,” says John Paul Kelly of debt advisors, Trust Deed Scotland.
“If you’re in this position, review your finances and strike out anything you deem to be non-essential to the day-to-day running of your business. Your bank balance will thank you for it.”
Sell business assets you don’t need
Got a fax machine you haven’t used in five years? Or a warehouse where you no longer hold stock? Consider selling them. Depending on the size of your business, you probably have assets that, like some of your expenditure, you no longer use. Review your asset base and sell anything you no longer get use out of, whether that’s an old IT suite or a fleet of cars you no longer run. You’ll suddenly find you have more space – and more cash, too.
Prioritize debt repayments
If you are paying off debts, prioritize your secured creditors and pay those with the highest interest rates first. When it comes to unsecured creditors and vendors, it’s best to treat all of them equally and pay them all something. It’s best not to play favorites and pay all of them something. You should also open a dialogue with your creditors and ask for more attractive repayment terms, or see if you can enter a payment plan with them.
Remember that your business plan is a working document
Remember that business plan you wrote seven years ago? Fish it out of the stationery cupboard and take a good, hard look at it. It’s probably what secured your initial funding and it’s the document that lays out your company’s vision and goals. But if you haven’t reviewed it for a while, now’s the time.
“Always maintain an updated business plan and be totally committed to its achievement,” says turnaround expert Chuck Benjamin.
“A business plan is critical to the governance and success of a well-managed company. A proper plan includes a sales and marketing plan, operating plan, capital-expense budget, and a cash-flow projection.”
If your circumstances change (you start making less profit, for example) then you should always make sure your business plan reflects the current state of your business. This will allow you to do proper financial forecasting, mitigating against debt and bankruptcy wherever possible.
If there’s a problem, face up to it
When problems arise in life, burying our heads in the sand and hoping it will somehow go away usually seems like an attractive option – out of sight, out of mind, and all that. But the reality is that ignoring problems rarely results in a good outcome. Rather, it tends to make things worse. When it comes to nipping things in the bud, the one thing you should really keep an eye on is your financial situation.
If the road ahead suddenly seems rocky rather than smooth, address the problem. Be open and honest with your team and put plans in place to manage things, whether that’s by improving your cash flow, adjusting your profit expectations, or something else. If things look really bad, consider speaking to debt experts who can advise you on the best courses of action to take.
You might also be interested in a Top Keynote Speaker for more information on best business practices.