8 Precautions That Could Save Your Business From Bankruptcy
Every year there are thousands of companies that have to file for bankruptcy in order to continue existing or as part of the process of closing down. Operating a failing business can be stressful and depressing because oftentimes you can feel as though there’s little you can do to save the company once the situation has gotten past a certain point. However, you can significantly reduce the chances of experiencing such turbulence by implementing precautions that make the business more resilient and sustainable. With that said, here are eight steps you can take to lower the likelihood of encountering issues that could lead to business bankruptcy:
1. Obtain Adequate Workers Compensation Insurance
Not having adequate workers compensation insurance can expose you to the risk of facing heavy legal and financial burdens if one of your employees is injured on the job. On the other hand, not having this insurance would make your business highly vulnerable because it could be sued and charged with covering all of the expenses incurred by an employee who experienced a personal injury while working for your company. Fortunately, you can use a comparison site to quickly receive a workers compensation insurance quote from multiple providers in order to select the most economical and suitable policy for your company’s needs.
2. Hire Competent Managers
Hiring effective managers can greatly reduce the likelihood of facing any problems down the road because your company will be in good hands at all times. Conversely, trying to cut corners or speed up the hiring process by hiring inexperienced or less-than-ideal managers is a mistake that could lead to an increased risk of business bankruptcy and failure. Good managers may require higher salaries but the extra pay will be worth it when you consider how much protection you’re giving your business by putting management duties in the right hands.
3. Maintain an Accurate and Consistent Accounting Process
Inaccurate and inconsistent accounting and bookkeeping can lead to a situation in which your budget and tax filing situations are adversely affected. Of course, being audited and ordered to pay a hefty sum towards back taxes could throw a wrench into your financial planning, so it’s best to have a highly detailed and completely accurate record of every transaction conducted by your business throughout each month. Learning how to use accounting software is the best way to reliably ensure accurate accounting. Of course, you may also want to have a designated accountant who can help you review your books on a monthly or quarterly basis.
4. Limit Payroll Expenditure
Any time you’re spending too much on employee salaries and wages, you’ll be putting your business in a risky position. Reducing your chances of having to file bankruptcy is all about minimizing overhead and eliminating unnecessary expenditure. Since payroll is one of the primary sources of business spending and one of the biggest burdens on corporate cash flow, taking steps to limit this form of expenditure can tangibly improve your resistance to bankruptcy and all other forms of financial woes. One way to lower your payment obligations is to opt for outsourcing and freelancer relationships instead of yearly salaries. You could also pay your freelancers per task instead of by the hour to ensure their productivity is commensurate with their pay.
5. Reduce Debt Obligations and Credit Utilization
While sufficient financing can help to provide additional cash flow and keep the business from having to re-invest revenue out of pocket, it can also lead to overutilization of company credit. As a rule of thumb, try to limit your credit utilization to no more than 30% of your overall credit limit across all of your accounts. For example, if you had two $5,000 lines of credit for a total of $10,000 of available credit, you’d want to use no more than $3,000 of that at any given time. Operating in this manner will ensure that you always have a decent amount of credit to tap into while also gradually improving your business credit score and improving your chances of obtaining approval for advanced financing.
6. Add Revenue Streams
Creating additional revenue streams can help you improve redundancy and resilience because there will be more sources of income which increase the overall bottom line. Most companies can find extra services or products that will complement their existing offerings and create applicable up-selling scenarios. By increasing profitability and diversifying the way the business generates revenue, you can create a more redundant and financially durable company that will be able to withstand hardships without having to resort to desperate measures.
7. Attract Investors
Of course, any company that has a hefty pool of investment funding to dip into will be less likely to find itself in a position to have to file for bankruptcy. Having investors in your corner will also mean that you’ll have wealthy and knowledgeable business partners who may be able to help you find suppliers and appeal to new groups of customers or clients.
8. Liquidate Assets During Tough Times
Finally, if you notice that your company is starting to have trouble paying its bills and staying out of debt, you could liquidate some assets like equipment, inventory, or property to help alleviate the burden. This might seem counter-intuitive, but it’s better to lose some of the company’s assets than to undergo a bankruptcy proceeding.
Avoiding Bankruptcy Will Keep Your Brand Going
Building a reputable brand with a large following can take a lot of time and effort, so having all of that work rendered pointless can be a nightmare, to say the least. While filing for bankruptcy can sometimes be the last resort that saves a company from complete dissolution, it can also hurt a brand’s reputation and many businesses never fully recover. Instead of viewing bankruptcy as an escape plan for your company in a worst-case scenario, it’s better to see it as a likely precursor to failure. Thus, be sure to take all eight of the steps above to protect your brand from bankruptcy.