If you are a business owner, you are likely aware of the need to be proactive when it comes to avoiding bankruptcy. If your business goes bankrupt, not only will you lose your business, you and the lives of your employees will be altered tremendously as will your credit score, ability to get a future loan/mortgage, and your ability to buy a home or obtain tax refunds and new credit cards. Business owners, whether they run a large or small business, should do all that they can to prevent bankruptcy and to stay on top of their debts and income. From owners of small retail stores and restaurants to owners of multi-million dollar tech companies, all business owners should do what they can to keep their company thriving.
Are you a business owner that is looking for ways to be proactive? If you are, or you are thinking about starting a business in the near future, this post may be able to help you. This post will detail 5 easy ways to prevent your business from going bankrupt, or you can learn more about preventing bankruptcy from a Philadelphia bankruptcy lawyer.
How You Can Prevent Your Company From Going Bankrupt
If you are a business owner, here are some things to consider to prevent bankruptcy.
1. Make Sure To Not Borrow Too Much
This is something to keep in mind when you first start your business, and down the line as you continue to get loans and borrow money. It seems obvious to not borrow more than you can payback in a timely fashion, however, many people do this on accident. It’s common for people to rely solely on loans to fund their business, especially when it comes to starting the business. This is a dangerous action; in fact, business owners ideally should start their business with their savings and should use the money earned from the business to pay for company needs. Banks will give out large loans, knowing that there is a high-interest rate and that many people can not pay them [the loans] back quickly.
With that being said, it’s likely that you will have to borrow some amount of money, so in order to avoid any issues with borrowing money, be sure to know the value of the monthly interest, plan the installments you will pay, and the terms of the loan. Also, do your best to borrow only the money that is absolutely necessary, and try to rely mostly on savings and earnings.
2. Track All Spending and Business Expenses
This is an important, easy, and straightforward method that will help you avoid bankruptcy as a business owner. It’s important that you track all spending and business expenses so that you know exactly where your money is going and so that you can plan and budget future expenses. From new software on company computers to ink for the printers and company lunches, keep a record and receipts of everything you spend money on having to do with your business.
If you are in money trouble, and are unsure why, perhaps you thought you were spending responsibly, you can look back at records. You will easily see where you spent too much money one month or over the course of the last few months. You can track expenses in a variety of ways, such as writing expenses down and saving invoices/receipts, installing money tracking software, or simply on the cloud.
3. Prioritize Your Debts
As stated above, you will likely have to borrow money at some point, so it’s important that you are aware of the various debts you have and prioritize them. Try to pay off the debt that has the highest interest rate first, then construct a plan on payments for the rest. Many people make the mistake of paying debts randomonly- don’t do this. Not only will it be hard to keep track of what money you still have left to pay, but it will also be hard to track the money you are putting towards paying off debt.
It’s also a good rule of thumb to continue to budget while you are prioritizing your loans. Budgeting will allow you to pay for business necessities, such as rent, company supplies, and any legal obligations, while still accounting for your debt.
4. Opt for Debt Management Services
If you are having a hard time managing your debt all by yourself, consider working with a debt management company. A debt management company will negotiate with your creditors to lower your interest rate and attempt to remove or reduce fees. After the negotiation is made between your creditors and your debt management service, you will begin to pay the debt management service every month and they will distrirbute your money accordingly. Debt can make a business go bankrupt fast, don’t let this happen to you.
It’s important to point out that debt management services are not free, however, they are affordable and will be worth it when they help you avoid going bankrupt. You should also know that while you are utilizing this kind of service, you aren’t allowed to open up any new credit cards. These programs also offer debt counseling classes that will teach you how to start saving and how to better budget.
5. Maximize Income
Maximizing your income is the best way to get rid of debts and avoid bankruptcy. Of course, everyone wants to maximize their income, however, when the future of your business depends on it, you will have to do all that you can to maximize your revenue. Depending on the kind of business you run, you may want to consider:
- Doing side gigs
- Offering services on weekends and nights
- Selling equipment you no longer need
- Laying off employees that are not viable to your business
- Switching your suppliers or supplies to a more affordable option
Be Proactive When it Comes to Preventing Bankruptcy as a Business Owner
Of course, nobody wants to go bankrupt, and with tips such as these, you can do your best to avoid that from happening. No matter the kind of business you run, with small efforts and smart planning, you can keep your business thriving and you can avoid having to file for bankruptcy.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy lawyer.
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