With starting a business comes a lot of responsibility. You’ve given plenty of thought to your marketing and budgeting plans. You made smart hires and built out the right team. You’ve even started planning for worst-case scenarios, however frightening they may be. You’ve heard of small businesses suffering from financial woes and falling into bankruptcy too.
Although bankruptcy for a small business doesn’t always mean the closure of your business, it’s surely a sign of distress. Obviously, you don’t want that. So, how do you avoid it? Follow these tips to avoid small business bankruptcy from rattling your venture.
Invest in Business Insurance
The first thing you want to do when running your SMB is to invest in business insurance. In a way, company policies are safety net that keeps your business from experiencing a financial freefall. Heaven forbid your company is ever sued, defrauded or experiences any costly breakages. But if you do, your business insurance provider is there to assist you.
Take a moment to figure out which policy/provider is right for you with a business insurance calculator. Even if you already have a plan, it’s smart to review your options periodically. Businesses do grow and change after all. Shouldn’t your plan?
Assess Your Weakness and Strengths
Assessing your weaknesses and strengths is essential to avoiding bankruptcy. There’s a surefire way to analyze your business in full using the SWOT method (Strengths, Weaknesses, Opportunities, and Threats). This process helps you figure out what your business’s shortcomings and strong points are, as well as realize how external resources affect your wellbeing.
For instance, if your marketing strategy is excellent but your product isn’t selling well, it might be time to improve that product or service. The key to this analysis is being honest. If you want your business to be successful, you have to be open to looking at parts of the business that aren’t working. After all, without initial failure, there’s no room to grow.
Renegotiate Debt and Contracts
If the financial stress is real and you have a lot of debt to pay off, prioritize your secured creditors and pay those with the highest interest rates first. When it comes to the other debts, it’s best to treat all of them equally. Pay all of them an amount you can afford. If that’s not an option, it’s time to open up a dialogue with your creditors and ask for different repayment plans.
Listen to Your Clients and Employees
It might be hard to hear, but business leaders are always right. You aren’t always right. You might have had a brilliant business idea and the ambition to start a company, but that doesn’t mean you’re the only one with good ideas. Start listening to your clients and employees with an open and critical mind. Most times it takes another pair of eyes with a different perspective to realize a solution. Employees often have a pulse on the inner workings of a company. That’s a perspective you should heed. And if a client is telling you there are issues, that’s all the more reason to pay attention.
Create Additional Cash Flow
If finances are super tight, it’s smart to open up another short-term cash flow. If you have a business which makes sales based on credit, it’s time to develop a strategy for pulling these sales in. For instance, ask for longer payment terms from your vendors. This will extend accounts payable and provide an additional source of cash to help fund short-term needs, including inventory.
Alright, entrepreneur. You’ve made it this far. Now follow these simple steps and you’ll be money-smart with your business. Even if you’re in a financial pickle, you’re not necessarily doomed. There are always different ways to fix issues. Just remember to invest in business insurance as a baseline. Be honest about your strengths and weaknesses, create additional cash flow, and listen to clients and employees.