Bankruptcy is an option that business owners consider once their business isn’t doing too good. But it shouldn’t be taken lightly, as the consequences can be dire. Bankruptcy should only be considered as a last option. It is not supposed to be viewed as an easy way of getting out of debt. This is why we are going to talk about the best ways of avoiding bankruptcy and a bit about bankruptcy itself, so let’s get started, shall we.
The Consequences of Declaring Bankruptcy
First of all, you need to be aware of all of the potential issues that can arise when declaring bankruptcy, this way you know exactly why you want to avoid it and when it becomes necessary. Although it may differ from country to country, most consequences remain the same.
- You will lose access to safe – low-interest loans, and will only have access to high-interest ones
- Declaring bankruptcy doesn’t necessarily relieve you of all of your debts
- You might get restricted access to travel
- You lose your property
- It will become way harder to get credit in the future
- Getting a mortgage becomes almost impossible as well
- Depending on the value of the item and whether it’s counted as essential, you can lose your vehicle, jewelry, antiques, and other valuable items.
As you can see, the process can really take its toll on the one declaring bankruptcy, so it’s best left avoided and focus on ways of settling your debt. In Australia for example, you will have access to a registered trustee that can administer your bankrupt estate.
1. Downsizing or Selling Your Business Assets
One of the most important factors that come into play when trying to avoid bankruptcy is getting the most out of your assets. Sell everything that is non-essential to your business operations. You will always have junk lying around that you can sell. You will also have some likable items that you adore, but if you want to escape financial ruin, sacrifices will have to be made (the parking spots will be missed terribly). Another alternative is renting out some of your business spaces to other small businesses. You start out by selling the items that you don’t use at all and work your way up to those that you rely on to avoid office demoralization. There is also the option of selling your franchise. Franchising isn't exactly related to being bankrupt. It's more in the lines of expanding your business to the next level in order to prevent getting bankrupt in the first place.
2. Look for Government Programs That can Help You
In most countries, there will be government programs that can assist business owners to get back on their feet after a terrible year. This kind of assistance usually offers lower interest rate loans. They are all the more popular during the pandemic period, where a lot more businesses will stand on shaky grounds. While some banks will decline your loan requests, others might accept them. So don’t give up after trying out a few banks, keep going and you’re bound to find a bank that will give you one. Overall, seek out any programs that will offer funds that you can use to pay for payroll costs, high-interest loans, mortgage, rent, etc. A variety of programs exist that can be of assistance to you, but it falls upon you to seek them out.
3. Completely Rework Your Budgeting
The biggest factor in avoiding bankruptcy is by far how you handle your budgeting.
The first step towards recovery is by eliminating all non-essential expenses. Take a look at the things you have but don’t need to keep your business running. Some things you can cut down on include:
- Unnecessary subscriptions
- Unnecessary travel expenses
- Paid transportation for workers
- Sell your vehicles and get less expensive alternatives
- Cut back on spending money on small items like alcohol, cigarettes, and dining in restaurants
- Skip out on vacations
Once you have eliminated non-essential spendings, it is time to focus your funds on settling debts. Crushing debt is one of the scariest things for any business owner, and as such, it must be dealt with first. Focus on clearing the highest interest loans, and then start paying off the lower interest ones. Also, focus on paying off the bills that are most essential for your business, like electricity and water. Another form of reworking your budget is, unfortunately, by reducing staff costs. Firing people is never easy, but it must be done out of necessity. Fire the personnel that is least needed for the business to eliminate budget strains, and those that remain will need to undergo reduced salaries. Handle this situation with extreme care, because nobody will be happy with a pay reduction, so they might quit the job altogether, make it known to them that it’s a bad situation and that it will pass with everyone’s hard work and effort.
4. Make a Business Plan Update
When the situation is critical, fundamental changes will be needed. You need to take a deep breath and reanalyze your business plan. Treat the business plan as a document that requires constant updating rather than a finished constitution. You reading an article about potential bankruptcy might be an indicator that it’s time to reassess the business plan. Make yourself more known to the world, rework your budgeting and enterprise strategy, take a new approach in marketing, rebrand yourself, cut down on non-essential spending, and finally, rework your forecasts. Be certain that this won’t necessarily make the looming bankruptcy go away. This will, however, revitalize your business and get you back on your feet. The alternative is just letting time do its thing and making bankruptcy imminent. So if this option doesn’t suit you, get working on modernizing and updating the business plan.
5. Renegotiate With Lenders
At the end of the day, make a few phone calls or e-mails with financial partners and lenders. Renegotiate with suppliers for lower payment plans that can prolong declaring bankruptcy. You can also ask for a longer repayment term that will allow you to use the money you have at hand towards getting back on your feet.
This is not a guaranteed strategy, some lenders will just flat-out decline. But rationally speaking, it is in their best interest that you survive and remain operating as a business, it’s common sense to want your source of revenue to stay afloat. Try making this a case point for why they should accept the renegotiation. You need to be able to convince them why renegotiations work for them as well. The same thing can be applied to most of your contract holders. Be clever in your approach.
Bankruptcy can be devastating to an individual, but it isn’t the end of the line. With that said, you can bounce back from bankruptcy but it’s still best left avoided. The hard work and reassessment of your entire business, reshaping it from the ground up will prove to be more beneficial and less painful than just outright declaring bankruptcy. So if you’re in a bad spot financially, reassess your business plan, take a new look at budgeting, cut down on unnecessary expenses, and stay positive!
My name is Jacob Braun, a writer and a fan of most things online. I write about web design and development, digital and traditional marketing, small businesses, social media-related subjects and most things revolving around the entertainment industry.