Learn How to Prevent Bankruptcy Before It’s Too Late
Business bankruptcies are a huge sign of financial distress and often lead to business closures; this is true for large corporations and small businesses alike. Bankruptcy can happen due to a number of reasons and should be considered a last resort for businesses. A bankruptcy attorney in Philadelphiaexplained, “Due to unfortunate reasons, businesses become unable to pay back debt and have no other choice but to file for Chapter 7 or Chapter 13 bankruptcy. If financial problems show up early on in your business, don’t ignore them, they could be the preface of a necessary bankruptcy claim.”
Here are some of the most necessary tips to help you avoid bankruptcy and maintain a successful business:
1. Prioritize Any Debt Repayments
Often, businesses find themselves having to file bankruptcy because they overextended their spending in the past. In order to avoid having to pay back any debt, try not to borrow money, to begin with. Creating a business, of course, costs money, but spending too much-borrowed money will make it challenging to pay back in a timely manner. This money will then begin to generate interest and will make it even harder to ever pay back, especially if your business does not end up being successful.However, if you do in fact owe money, prioritizing who you owe money to is crucial. Prioritize secured debt (debt that is secured by collateral; like a mortgage) and high-interest debt first. Next, pay back any other unsecured debt. It’s also important to attempt to allot funds to pay back creditors and other payments in order to efficiently begin to prioritize paying back debts.
2. Get Rid of Unnecessary Expenses
This is one of the easiest ways to avoid bankruptcy within your business. Non-essential expenses should be cut out of your business budget; meaning expenses that do not add value to your company such as excessive software subscriptions and company lunch outings. Taking a look at your bank and credit statements frequently can help you determine if you are spending unnecessary money.If you’re paying for anything that isn’t imperative to the daily operations of your business, cutting out these extra expenses could aid in saving your company from potential bankruptcy.
3. Pay Attention to Money Collection and Cash Flows
You must be able to collect money from customers and clients in order to truly avoid debt. Usually relevant to small businesses that are just starting up, some customers and clients may set up installment plans, forward sales or promise to pay in the future. New small business owners usually will accept these future forms of payment in order to retain these customers. However, it’s common that these customers will not end up paying and will lead to your business’s bankruptcy.Make sure to rely on cash sales and pay attention to who owes you money. Installment plans and forward sale terms are not always negative, in fact, they can actually be extremely beneficial for businesses. However, they should only be used if the business is financially stable and has developed clear written and signed terms between the client dealing with when and how the business will be paid.
4. Create a Written Business Plan
Business plans are necessary for all businesses, big or small. These plans describe tactics and other strategies having to do with budgets, sales, expenses and any other sort of business costs. A written business plan will make it clear where the money is going, where money has to go, and where it has gone in the past. This is helpful in order to avoid bankruptcy because all things having to do with money will be written out in plain sight so nothing is looked over.Business plans help the business owner see any future expenses so he or she can plan accordingly. Similarly, business plans will show any debts that need to be paid or prioritized.
5. Review of Insurance Policies
Insurance, whether it is health, disability, or property, is a large expense for businesses. It’s imperative to pay attention to premiums and to stay in touch with your insurance agent. Premiums tend to go up every year which can take away large sums of money without the business owner noticing. Your insurance agent will be able to talk to you about options available in order to help you choose the insurance that is appropriate for your business.
Strategize Now to Avoid Bankruptcy Later
No business is ever entirely safe from bankruptcy; however, every business is able to take actions to try to be proactive in doing their best to avoid it. Whether you are a large corporation or a small business, keep these tips in mind in order to make smart business choices to prevent your business from going bankrupt. Small efforts now will save you later.Bio: Veronica Baxter is a writer, blogger and legal assistant operating out of the greater Philadelphia area.