Monika Hall, Negosentro | It is alarming to know the amount of businesses that cannot survive in a year of being in the industry. Depending on which statistics you examine, approximately 4% to 2% of businesses do not succeed in their initial year of business. To sustain a business in a single year may not seem like a very long time.
But, how can an entrepreneur guarantee that the business they are arranging to launch can at least survive in year and that their business can succeed in its own way?
How to Avoid Bankruptcy When Starting A Business
The country’s economy has profoundly improved since the time of the recession, however it is still a precarious setting for small businesses. In fact, even a much experienced businessman can become unprepared by the rapid changes in technology and stock market. An entrepreneur can still avoid small-business bankruptcy and prevent the possibility of failure by knowing the major problem areas in the business industry and how to address them.
- Budget All Expenses
One reason why businesses fail when they start a business is mismanaging their funds. They are left with no cash, thus no more business.
- Think long-term: It is always beneficial to formulate long-term plans, especially for unexpected expenses, or infrequent expenses such as building repair costs, seasonable cleaning (especially during winter). Without such preparation, infrequent expenses can put your business in a difficult place. Your business will begin going over your funds or budget, borrow money from others, or delay the expenses.
- Set away funds for each purpose: Put funds way for seasonal, quarterly, or annual expenses while you doing your usual monthly expenses. Also, set aside funds for further general and unexpected expenses.
- Write down all possible expenses: Lastly, write out all the potential sporadic expenses and include them in your regular budgeting. Further, be cautious with your profit margin and ensure you possess an emergency fund and a cash cushion.
- Disregard Nonessential Expenditures
Sometimes entrepreneurs do not realize how regular expenses can drag them down. Small business owners must ensure that they thoroughly evaluate all their expenses including materials, rent, and labor costs.
- The economy’s rapid change can either increase or decrease your revenue: If you are not receiving value for your money, then that is wasting money. Most starting businesses establish a credit account or supplier contract and forget about it. However, remember that the economy is frequently changing, which may either decrease or increase the value of your expenses.
- Make sure you are not paying more: Property values and interest rates significantly change, and this is a reason why small businesses sometimes arrive at a financial strain. Deliberately study your location’s rent value and ensure that you are not paying excessively than the actual value of your location or for a striking facade.
- Meticulously scrutinize all expenses: On a quarterly or monthly basis, meticulously examine all your expenses, employee evaluations and contracts to make sure you are earning the value that justifies the expenses.
- Compromise or renegotiate contracts: Further, try to rearrange supplier contracts, diminish rates in interests, and compare prices on everything. The key for early businesses is compromising. When your profit margin grows stronger along the road, that is the time you can upgrade your services and amenities.
- Prioritize debt repayments
In the event that your business pays off debts, make your secured creditors a priority. Make sure to first pay those creditors with highest interest rates.
- Unsecured vendors and creditors: Treat equally all unsecured creditors and vendors and make sure to pay them. It is wise not to establish favorites and pay all of those you owe.
- Negotiate payment terms: If possible, converse with your creditors and ask try to negotiate friendly repayment terms. Check if you can establish a payment plan with your creditors.
- Establish And Preserve An Updated Business Plan
Remember how you planned for your business? Get back on your notes, examine if you have achieved your plans, and see what needs improvements.
- Maintain an updated business plan: Be committed to your update business plan and achieve it. Your business plan is interpretative to your company’s governance and success. Likewise, a good plan includes a marketing and sales plan, capital-expense budget, operating plan, and cash-flow projection.
- In case situations change: In the event that your business makes less profit, make sure your business plan reveals the current position of the business. This allows you to innovate your plan such as doing financial forecasting, alleviating debt and preventing bankruptcy.
Starting A Business Can Be Tough, But Don’t Let It Ruin Yours
There is a lot to deal when growing a small business, including investments and making sure your company does not fail. Paying attention to your business’ financial plan can either avoid debt and bankruptcy, or help you cross the bridge when it happens. Make sure that you have crucial plans to help manage the worst things that can happen in your business. Remember that guidelines we mentioned earlier and stay committed to them.
Considering bankruptcy as your last resort can be a frightening experience for your business. To better understand your legal options involving bankruptcy cases, you can click here.
Monika Hall is a businesswoman and has been a law writer for the past 12 years. She is currently writing a new law piece and hopes to impart her knowledge to others in her writing. Monika is forever a creative spirit. She always expresses herself with creative pieces such as poetry whenever she has the time.