No one wants to have to think about bankruptcy. The idea itself implies defeat. That’s exactly the opposite of what should be driving your business decisions in normal circumstances. However, unexpected things can happen to any company. In a dire situation, you may have to make difficult choices. Luckily, there are ways to stay out of the dreaded bankruptcy zone. Here are five measures for avoiding small business bankruptcy.
Be Honest with Your Assessment
If bankruptcy is imminent, the time for overzealous optimism is over. You’re now in a period that requires strict realism. In order to make an attempt at avoiding bankruptcy, you need to be honest with yourself. A lack of self-awareness is often the original cause of financial woes for small business owners. When the going gets tough, it’s do or die. Take an objective look at where you’re doing okay, and where you’re in trouble. Companies that can quickly assess issues and reallocate resources can escape overbearing debt.
Hire a Consultant
An outsider’s perspective can sometimes identify major issues going undetected. There are many consulting agencies that specialize in bankruptcy avoidance. By hiring professionals, you’ll have the expertise of people who have seen your exact problems before. They will be able to give tailored advice that will likely help you get back on your feet.
Once you’ve taken a holistic look at your business, it’s time to cut costs. First, cut any expenditures that don’t help create revenue. Your fancy espresso maker won’t do you much good if you’re out of business. You can also decrease spending by finding less expensive substitutes for necessary services. Use a business insurance calculator to find the best-priced plans for what you need.
Keep in mind that employee layoffs are usually the last place you want to start to save money—as they can greatly lower morale. No workplace can be healthy when its members are afraid for their jobs.
Renegotiate Contracts and Debt
It’s possible that you’ll be able to renegotiate contracts and debt. Speak with your suppliers. They will likely want to keep you as a customer, even if you have to pay slightly less to stay afloat. Your lenders may also help you out by renegotiating the terms of your debt. If you don’t have many assets, but a lot of debt, that’s not super useful to a lender. They would much rather you pay back a loan than default on it. Renegotiating terms can be a win-win situation for companies and financial institutions.
Hire New Management
You can’t blame entry-level employees for the failures of a business. Management is almost always the culprit of company-specific problems. If none of the above suggestions are helping, clean house. Hire new management—especially people who have prior experience in navigating bankruptcy. Even if you’ve had the same management team for years, you shouldn’t be too sentimental. They helped you get into this mess. Fresh perspectives might just get you out of it.
Sell Part of the Company
Small business owners are sensitive to the idea of giving up part of what they built up from scratch. However, bankruptcy changes the situation from want to need. If you’re up against a major existential threat, you need to take drastic action. Selling equity and debt to outside entities can be the saving grace for your business. You will lose some control of your company, but you will get cash that can be used right away.
Bankruptcy is a nasty term. It conjures up images of sadness and disgrace. Sadly, it’s something that over 25,000 businesses experienced in 2016. Try to avoid bankruptcy by considering the above steps.