As a small company owner, it’s critical to recognize your successes and concentrate on all the ways your firm is flourishing. However, it’s as (if not more!) critical to evaluate some of the possible issues your firm may encounter (and how to prevent them)—which includes the possibility of bankruptcy. Nobody likes to consider the possibility of their company failing. However, by knowing the preventive measures that must be taken, you can prevent bankruptcy in the future and keep your firm sustainable and going ahead.
Maintain Contact With Lenders
If you cannot make your planned mortgage or other business loan installments, contact your lenders immediately. Defaulting on a loan may have significant implications, including a reduced credit score, late penalties, and a lawsuit against the borrower by the lender for the balance outstanding. By swiftly contacting your lenders and explaining your position, you may be able to prevent a default. Your lenders may be prepared to postpone payment, extend the loan period, or work out a payment plan with you.
Dispose of Non-Essential Assets
Take stock of objects or assets you haven’t utilized in a year. You may use vacant storage facilities, idle business automobiles, and even ancient fax machines to generate more revenue and space. Larger organizations may want to consider employing a broker who can assist them in maximizing the return on their assets for sale. Eliminating obsolete or unused assets enables you to keep current with new technologies while increasing the value of your firm. Try to be realistic about your financial situation and take action promptly to prevent permanently shutting your business.
Always Prioritize Your Debts
As a small company, it is critical to meet your financial responsibilities. If you default on a payment, your creditors and lenders may pursue you in court to collect what is owed, which may result in bankruptcy. Therefore, it is advisable to engage with a Licensed Insolvency Trustee (LIT) who can answer questions like, what is a consumer proposal? And how it can help your company avoid bankruptcy?
If you want to avoid bankruptcy, you must pay creditors and lenders—and prioritize them above almost everything else in your firm.
Pay the bare minimum on any existing company debts. Ensure that you make all your payments on schedule. If you’re having difficulty paying your debts, get ahead of the problem by speaking with an expert about debt restructuring; creditors can work with you to develop a repayment plan to cover your debts without declaring bankruptcy.
Creditors and lenders are not going anywhere, and they have the power to put you into bankruptcy if you fail to meet your obligations. Therefore, regardless of the state of your company, always prioritize paying your bills – and deliver them on time.
Recruiting a Business Attorney
A small company owner may believe that hiring an attorney is unnecessary. A legal settlement could be the final straw, so it’s best to avoid one from the start. Having a lawyer on your side protects you, your assets, and the long-term viability of your business.
If you’re hiring a lawyer for the first time, The Entrepreneur reminds you that there are numerous specializations. Your family lawyer will not be able to meet your business’s needs. Contracts, intellectual property, taxes, and licenses are the fundamental skills that your business lawyer should possess. The American Bar Association offers an excellent online referral service that can assist first-time clients in finding a lawyer.
Consult with Accountants
Most businesses treat accounting as an afterthought, keeping their books only to comply with the law. However, an accountant can do much more than managing your business’s books. They can be critical in financial planning and determining the appropriate loan types for your business.
While there are some helpful tips for dealing with bankruptcy, debt will undoubtedly be a problem for a business already struggling with its finances. However, a timely cash infusion into areas with a predictable return can help you stay afloat and recover your business. Keep in mind that you should proceed cautiously and consult your accountant regarding the debt you can incur. After you’ve created a business plan, a financial planner can advise you on the best financing options. A sound financial strategy can help small business owners avoid bankruptcy.
Author information: Regina Thomas is a Southern California native who spends her time as a freelance writer and loves cooking at home when she can find the time. Regina loves reading, music, and hanging with her friends and family along with her Golden Retriever, Sadie. She loves adventure and living every day to the fullest.