When businesses are in debt and unable to pay back their creditors, business owners often assume that filing for bankruptcy is the only feasible solution. When businesses file for bankruptcy, they typically lose their assets and lines of credit and almost always have to shut their doors as a result. Most business owners would agree that this is not a good situation to be in. Read on to find out about the best ways to protect a business from bankruptcy to avoid the problem to begin with.
Understand the Common Reasons for Bankruptcy
The most obvious reasons that businesses wind up going bankrupt is that they cannot generate sufficient capital to manage inventory, pay employees, and market their products or services. Many business owners borrow from creditors to keep their companies running, but this can leave them in an even worse position than before if the business is unable to pay back debts on time.
The underlying reasons behind this common problem vary, but they can include mismanagement of funds, lack of innovation, or putting trust in the wrong employees or consultants. Business owners who have already found themselves in this unenviable position can click here to find legal help. Those who are struggling to stay afloat but have not yet reached dire straits should keep reading to find out what to do.
Review Expenses
Businesses struggling to get by should start by cutting out unnecessary expenses. These encompass any expenses that don’t add value to the company, including unnecessary benefits like gym memberships, free lunches, and music subscriptions. Employees may not like having to do without these perks, but they’ll like it more than winding up without a job if the company goes under.
Prioritize Debt Payments
All businesses, no matter where they stand financially, should prioritize paying off debts. If the business isn’t generating enough capital to make even the minimum payments, consider debt restructuring. This process alters the terms of the debt by extending payment periods, restructuring principals, or altering other terms. Keep in mind that debt restructuring plans must be approved by creditors.
Sell Unused Assets
Most companies have at least some assets that they don’t use. For construction firms, that might be specialized equipment. Tech companies may find that they have far more computing power than they do manpower, especially if they have to scale back their operations. Don’t sell off assets that are used on a daily basis, but anything that’s been sitting around the office or warehouse for years without being used needs to go. The money from liquidizing those assets will be much more useful in paying down debts than unused equipment.
Hire a Professional
This may sound counterintuitive to business owners whose companies are already struggling to stay afloat, but it’s worth the money to find professional help. Depending on the business and its circumstances, this may come in the form of an accountant, a debt consolidation expert, or a lawyer. Consulting a professional will give business owners a better idea of their options and what resources are available to help them avoid bankruptcy.
The Bottom Line
Nobody starts a new business with the intention of eventually winding up broke, but mistakes happen and, sometimes, market changes or other external factors can make it impossible to keep even a well-run business afloat. However, business owners don’t have to resign themselves to giving up their companies as anything other than a last resort. There are usually other, less drastic options available.
