Bankruptcy is an available option, but you have the freedom to take it or leave it. Small business owners are one group who have to constantly fight their way from the brink of bankruptcy. Many are fortunate enough to get along with loyal customer base and unique service. Others are not so successful.
Approximately 43,546 small businesses have closed up shop in recent years due to bankruptcy. Keeping it going while bankrupt might be impossible, but can be done. Once filed, all for your business’ functions have to be stifled. How you proceed from there on will require enough diligence to avoid digging yourself deeper into debt.
Here are some ways you can prevent your small business from falling into bankruptcy, or function in the midst of it.
Re-evaluate Your Business Plan
Every entrepreneur should start out with a solid business plan. Without it, you’ll never truly know whether or not your venture is making or losing profit.
Most business plans exist the owner’s abstract ideas and instincts. Let’s say you’ve worked at a pizza parlor for five years and now you want to start your own. You might know the costs and practices that go into running a pizza parlor, but have no knowledge of the business end. A written manifesto must cover the sales, operating budgets, cash flow, capital expenses, performance objectives and tracking methods.
Don’t Make Preference Payments
During the start-up phase of your business, you might’ve borrowed money from sources that include (but aren’t limited to) friends and relatives. Once you plan on filing for bankruptcy, you would think paying those creditors their fair share is a noble idea. It’s also a bad idea.
Preference payments will be reviewed by trustees to make sure some creditors weren’t given an unfair advantage over others. This may result in the trustee recapturing those payments so they can be redistributed to each at a new, possibly fair, rates.
Consider An Assignment for the Benefit of Creditors
When a business fails, it’s because the field no longer carries the customer base needed to justify its existence. Liquidation is inevitable, but the process must be fast enough to move on and fair to creditors.
An Assignment for the Benefit of Creditors (ABC) is an expedient, out-of-court alternative to bankruptcy liquidation. ABCs can conclude the affairs of an insolvent company in a timely manner while providing large distributions to creditors. Check with bankruptcy lawyers in your state about local laws relating to ABC applications and use.
Liquidate Assets & Non-Essential Expenditures
It’s common sense to save money by cutting back on luxuries. For the owner of a neighborhood restaurant, it means selling that big screen TV when you can’t afford satellite service.
Sometimes the simplest way to recoup losses is by liquidating assets you no longer need. If your specialty is retail, then consider holding a “Going Out of Business Sale.” What if you plan on staying open, but moving to a new location? Scale back on the equipment you won’t be taking.
SUBSCRIBE FOR MORE! HERE'S WHY:
1. You get 7 free books
2. You get the best money & productivity articles
3. You get the latest updates - all in one email per week