Disclaimer: This article should not be treated as legal advice. It’s recommended that readers still consult legal counsel and contact a lawyer should they have any concerns regarding bankruptcy.
When one talks of business, you may make it to a point that we’re always adapting to the market. This is one of the key tenets in making sure your business survives, as you’d only be able to keep on providing your services and products for as long as you’re in the market. This might be the reason why talk of bankruptcy can be weird for some as the goal is to “not” head into bankruptcy in the first place. However, another important aspect of business is trying to make sure you have a plan for everything, and acknowledging the possibility of bankruptcy can help you find key ways to help reduce your risk of bankruptcy in business.
There’s a great amount of fear attached to the notion of bankruptcy, and there’s a good reason for that. Individuals and businesses that apply for bankruptcy are affected by this move in different ways, but the reasons are generally under the lines of not having enough money to support the bulk of their responsibilities. This is heavily attached to bills or loans that one has to pay. Understanding these reasons, how they affect you, and how you can deal with them can greatly help you find key ways to help reduce your risk of bankruptcy in business.
According to Intuit’s Quickbooks, bankruptcy in business is unfortunately an eventuality businesses should be prepared for given the flexibility of the market and the fast-paced movement of trends today. This means it’s a much safer move to anticipate that bankruptcy is a last option and it’s something to prepare for, even if your business is profiting. Being prepared for this eventuality can help save you a great deal of trouble in the long run.
Getting More Revenue
Perhaps one of the most obvious ways to reduce your risk of bankruptcy in business is to find more means to acquire revenue. This is however not something easy to accomplish. After all, you are running a risk of bankruptcy if you don’t have profits in the first place, so how can you accumulate something you’re running out of? Interestingly, part of this means adjusting necessary assets you have and tapping into alternate sources of revenue.
- When we say adjusting your assets, this means looking into your balance sheet to asses the kinds of assets and liabilities you have and liquidating some of the company’s non-core components, or even squeezing revenue from tighter management. This means having to make some changes to the current operations of the company, but this can have a great impact in the long run.
- Try to identify components in the company that are costly but providing little revenue. Are you using services that aren’t being used or are not providing the benefits they should be giving? Are there little profit aspects of the business that can be halted for a while? You can stop these services for now in order to save money.
- In the same token, try to find alternate streams of revenue by tapping into investors or borrowing money from creditors. You can also tap into your latent talents and raise the profile of your business to earn revenue through hosting events, tapping into your staff’s talents, or even renting equipment and space.
Change Internal Management
If your business is currently struggling, perhaps it needs a slight change in personnel. This is especially true if the performance drop in your business is due to some members of your team not being able to keep up with the standards your company needs. Aside from potential downsizing or hiring new staff, you may also be in need of new ideas in order to evolve.
- This means you should meet your staff frequently in order to assess current business habits that might be harmful in the long run and make changes whenever necessary. Part of this is admitting what is lacking and what you think you can do about it.
- In the same token, if there’s a need to downsize staff or terminate some employees, don’t do it recklessly. Always make sure you have proper documentation and performance evaluations set up and try to inform employees of the decision in advance. Be clear on what the termination reasons are and try to be as objective as possible as conflicts in this part of termination can be the groundwork for a wrongful termination suit, which can cost a lot of time and money.
- At the same time, try hiring a financial consultant as well. It’s recommended you hire someone who is trained to handle failing businesses as they can provide a fresh take on the business’s problems that don’t necessarily require changes in internal management.
What About An Assignment for the Benefit of Creditors
Sometimes, businesses fail due to the reality that their services or products might not be useful enough for their intended consumer base. This means even if they start a turnaround plan, chances are it will not work in the kind of atmosphere they have. In these dire situations, it might be better to liquidate assets and move on to a more useful project.
- This doesn’t necessarily mean just giving up on your company, however. The liquidation can be helpful in starting from scratch and revitalizing the original vision you have for the company. This is because instead of a turnaround plan that keeps the groundwork of your company, you’re starting from scratch.
- An Assignment for the Benefit of Creditors can also represent a process of liquidation that allows you to save time and expenses when concluding an insolvent company’s affairs. This can be cheaper instead of a Chapter 7 bankruptcy filing.
Bankruptcy in business is a tricky subject at best, especially if we consider the reality that there’s no way for us to know whether we will be bankrupt today or tomorrow. However, this is why methods such as analytics and other forms of observation exist as these serve as the first step for us to be able to identify trends we may need to stop in order to avoid bankruptcy. This, alongside the key ways above, can help reduce your risk of bankruptcy in business.
Of course, the above tips shouldn’t be taken as they are as these are only general reminders for business owners as a whole. If you’re concerned about the standing of your business specifically, you might be able to seek better advice from a financial or legal professional.
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.