When businesses face a financial crisis, they frequently consider all available options. Filing for bankruptcy is the most dramatic and conclusive option. While declaring bankruptcy does not mean the end of your business career, repairing your credit report and reputation can be difficult. A bad credit rating also means higher interest rates.
Knowing how to avoid declaring bankruptcy in business can save you a lot of money, both directly and indirectly. Fortunately, there are numerous ways for small business owners to avoid bankruptcy.
Effective Ways to Avoid Bankruptcy
Always Prioritize Debt
Debilitating debt is at the top of the list of reasons that force businesses into bankruptcy. Prioritizing debt payments over all other expenses is an effective way to avoid bankruptcy.
This necessitates a review of your bills to determine which ones to pay first. Certain debts must be repaid on time, such as secured debt with high-interest rates. You risk losing your company if you don’t. Among these debts are:
- Business rent
- Payroll taxes
- Secured loans
- Utility bills
- Court judgments
- Phone bills
Failure to pay any of these bills on time may result in the loss of your business or property. As you assess your budget, you will discover less pressing business debts with greater payment flexibility. They are as follows:
- Subscription fees
- Advertising and marketing
- Repairs and maintenance
- unsecured vendors and creditors like credit card debt
Cut on expenses
Certain expenses can be reduced or eliminated to help your company meet its financial obligations. Begin by reviewing your budget and bank or credit card statements. Is there anything you’re paying for that you don’t need right now? Non-essential costs include the following:
- Employee lunches
- Employee gym membership
- High-priced phones plan
- Unnecessary travel expenses
- Company cars or paid transport
- Off-site team events
- Modern office improvements
Look for ways to cut these costs or replace them with less expensive alternatives. Consider how much money you could save if you swapped out-of-town team events for in-house team events.
Negotiate with creditors
A meeting with your lenders can sometimes improve your current financial situation. Maintain contact with all of your vendors and lenders, and be open about your company’s current financial situation. Request more manageable repayment terms or lower monthly payments whenever possible.
Inform them that you are considering filing for bankruptcy but are looking for other options. This gives you leverage to negotiate lower monthly payments. You can also hire a debt relief company to negotiate with your creditors and reduce the amount of your debt. Your creditors may also be able to assist you in developing a strategy to get you back in business.
Diversify your offering
It could be a good time to rethink and diversify your company’s offerings. Is there a unique way to spin them to generate extra revenue to help you pay off your debt?
For example, if your company specializes in web design, you could write and sell e-books about web development principles on your website. Simply try to be creative and diverse. It could be as simple as expanding your service offerings or as complex as designing a new product line.
Choose the Right Loan
While most business owners try to avoid debt, it is common for what begins as a small shortfall to quickly snowball into bankruptcy. Finding the right loan will give you a cushion that will help keep your business afloat.
The key to taking out loans is to not borrow too much or too little. To determine how much you require, examine your return on investment (ROI), cash flow, and current economic health. This allows you to see which loans are suitable for your company and its specific requirements.
Seek Professional Help
If you believe your small business is on the verge of going bankrupt, we strongly advise you to seek professional assistance. The type of professional assistance you seek will be determined by the level of assistance required and the financial health of your company. Consider the following experts:
- A credit counseling agency: They examine your finances to assist you in developing a budget and collaborate with you to develop a potential debt management plan with
- Debt consolidation specialists: They investigate your financial situation to determine whether consolidating your debt makes sense for your company. Most financial institutions provide debt consolidation loans to businesses in order to help them manage their debt and get their business finances back on track.
- Debt settlement companies: They negotiate with your creditors to reduce the amount of debt you owe.
Seek legal help
If you are unable to service your debt but wish to keep your business operating, consider filing for Chapter 11 bankruptcy. This type of bankruptcy allows you to keep your business running while reorganizing your debts.
You must work with an experienced bankruptcy lawyer to qualify for this type of bankruptcy. These experts will guide you through the entire process and assist you in developing and submitting a reorganization plan to the court. They will explain to the court your debt and how you intend to repay it.
Need help filing for bankruptcy in Media, PA? Contact Us Today!
While no one wants to consider their company going bankrupt, knowing how to keep your company financially fit as a business owner is critical. If your company is facing bankruptcy, it is always best to seek legal counsel. Seeking legal counsel can significantly improve your company’s financial situation.
Our attorney, Michael Alan Siddons has extensive experience successfully assisting businesses in avoiding bankruptcy. We work with you to better understand your rights as a business entity and to determine the statutes of limitations that apply to your debt. To schedule a free consultation, call 610-255-7500 today.