Entrepreneurs and small-business owners have many stresses to deal with, and due to their level of both financial and emotional investment, may end up heading towards bankruptcy without being fully aware of the circumstances. Being on the lookout for warning signs is obviously key, but there are other steps you can take to salvage a bad situation. I interviewed Jon Paul Kelly of Trust Deed Scotland, and he suggested five tips for avoiding bankruptcy.
Recognize That There Is a Problem
Although entrepreneurs often have to be optimistic about their business, it’s important to recognize when things are not running smoothly, and start to take action before the opportunity to either save it or close it down the way you want to has passed. Regular negative cash flow is obviously the big red flag. You have to ask yourself at this stage whether you can afford to, and are willing to, put any more personal money into the business.
Revise Your Budget
If there’s a chance of bankruptcy, you need to have a thorough examination of all of your costs and see if any can be cut, revising your budget so that it’s appropriate for your company’s current situation. Are there specific costs that are putting your business into debt? Could some reorganization, such as downsizing your office space, be beneficial?
Once you have allotted money for rent, utilities, and other essential costs, you should dedicate as much of the remaining funds as possible to paying off debts. If you have credit card debts, you should focus on paying above the minimum repayments, as otherwise these debts will be lingering for a long time. Accounting software like QuickBooks or Sage50c could be helpful for keeping track of your budget.
Assess Your Assets and Customer List
As well as doing a complete overhaul of your budget, you should also take a look at your assets and customer list. If your business has been going for a while now, it’s likely you’ll have transferable assets that a similar company would consider buying.
Taking a complete inventory of everything your company owns is also a smart idea; selling off unused equipment, for example, can help bring in some extra money. Finally, examine your customer list. Are there any customers who you could transfer to a similar company?
Speak With Creditors
Telling your creditors that your business is facing hard times may not be easy, but it could be to your benefit. See if they have a different payment plan that could help ease the pressure you are under, and emphasize that the better the plan they can offer, the quicker you’ll be able to start paying them back.
Working with creditors can be a difficult experience, so don’t be afraid to ask for help. Many non-profit organizations, such as Trust Deed Scotland, offer free advice as well as alternatives to bankruptcy.
Identify Suitable Competitors for a Possible Sale
If your company is not sustainable and you are considering selling, you should identify suitable competitors who you think would be interested in buying you business. I would recommend only approaching a couple of competitors; you could lose customers if word gets out about your company’s situation. Ensure that you plan every aspect of your pitch, and present it in a positive way – highlight what your company has done well, and what it has to offer to a potential buyer. You should also make sure to exchange confidentiality agreements before any sales pitch.