It is common for small businesses to face financial distress at some point, especially if capital is limited in the first place. However, economic issues should never be ignored or left to progress for too long. Otherwise, it can lead the business to the brink of bankruptcy.
But what if your small business is already on the precipice? Here are several tactics that you can use to avoid bankruptcy at all costs:
1. Prioritize your debts
When you’re already getting letters from a collection attorney or final invoices from your suppliers, it’s time to prioritize debt repayment if you haven’t already. Not paying your debts will only add fuel to the fire, and soon enough, late charges will pile up, making it harder to pay them all off. Moreover, there is a risk of facing a lawsuit if you fail to pay for an extended amount of time, which can easily take a toll on your finances.
2. Decrease your expenses
Review your expenses and determine which ones you can do without. If there are other areas wherein you can tighten your budget without sacrificing crucial aspects of your business, decrease your expenses in those areas.
3. Take calculated risks
When you run a small business, it’s reasonable to be optimistic about what the future holds. However, while it is essential to be positive about what lies ahead, it’s just as crucial to prepare for the worst-case scenario. You might be doing well now, but what about in the next coming months? What are the risks that lie ahead for your business?
Many business owners have financial difficulties because of the current pandemic. While there’s no way that anyone could have known that COVID-19 will happen, having a safety net is vital when things happen that are beyond your control.
4. Be careful with loans
Taking out a business loan is the most common and often the most accessible way for owners to finance their business. However, keep in mind that business loans hold the same risk as any other loan, perhaps even more so. When you trail behind on your payments, it can mean trouble for your operations.
That said, you must choose a good business loan with reasonable interest rates in the first place. At the same time, borrow just the right amount you need–not too much and not too little. Moreover, if you find yourself needing to take out another loan, do the calculations twice–if not thrice–before you make another financial commitment.
When the threat of bankruptcy is looming nearer than ever, consider renegotiating with your suppliers, landlords, and creditors. You might be able to get lower interest rates or more flexible payment terms when you ask for them. It can also help to let them know you are considering bankruptcy since creditors themselves don’t want to have their payments delayed if your business goes bankrupt.
Bankruptcy is not easy, and it can easily threaten the life of your small business. No one wants to watch their dream go down the drain. Hence, if you are facing financial issues, address them as soon as possible before you risk going bankrupt.