Starting a business doesn’t always lead to an endless stream of successes.
There are risks you should take into account if you want your business to stand the test of time. One of these is the risk of going bankrupt. Going out of business can occur for various reasons. Your market may not go well in your favour. It could even result from making risky investment decisions that eat into the bottom line.
The good news is that these situations are controllable and you can easily steer your business away from decisions that will lead to bankruptcy. Here are a few tips to keep in mind to prevent your business from failing financially:
1. Build a solid business plan
From the get-go, an effective business plan should be enough to shield your business from potential failure. After all, most corporate bankruptcies have been the result of poor planning. Executives either fail to identify risks and threats or overlook valuable opportunities for scaling.
You can prevent these scenarios by incorporating the need to evolve in your business plan. For this, you will need to draft an executive summary that highlights innovation. It is also important to include a vision and mission statement, as well as a list of short-term and long-term goals. Make sure to be specific and realistic when it comes to identifying these goals.
Your business plan should be backed by solid research. Before rolling out your business, you may need to map out the demographics in your market and check if there is a strong demand for the products and services you are selling.
Finally, you need to identify key benchmarks so you will always have references for changing your game plan. That way, your decisions will reflect the behaviours of customers.
There is much more to include in a successful business plan, but taking care as you draft one can help you weather any financial storm.
2. Diversify your offers
Selling one type of product or service limits your business’s potential to scale. You must add more offers on top of your flagship service or product.
Through diversification, you spread the risk out by tapping into multiple markets which have the potential to grow. Having a presence outside your core market also helps you open up new income streams. That way, your business remains profitable as the risk of bankruptcy decreases.
Coming up with a diversification strategy is crucial to making sure your business is making the right decisions when it comes to penetrating new markets. This strategy should help you realize if your business is ripe for diversification and identify niches and areas that can add value to your existing products and services.
Again, sound research is crucial. You need to know if the market you want to enter offers immense growth potential. It’s also important to find what can work within the framework of your business.
Diversification also carries several risks. For one, you may need to invest a lot of time and money to research new markets and develop offers that cater to these markets. The aggregate cost could end up being higher than what you are set to gain.
You may need to review your overall business strategy and see if the new markets align with your goals. From this, you can adjust your goals or set new ones to accommodate the need to diversify your products or services.
3. Observe proper accounting
Most of the time, it is how you keep track of your finances that increases the risk of bankruptcy. Accurate documentation helps you determine how much money flows into your coffers. It also enables you to know whether you are haemorrhaging money or not. Ensuring a robust accounting system allows for effective financial planning and management.
For this reason, you must enlist a certified public accountant or CPA. By taking charge of your bookkeeping and budgeting needs so you are always sure where your revenue ends up.
They can also help with avoiding costly tax penalties by ensuring that your business follows local and national tax policies. On top of that, a CPA can also help you with calculating tax deductions and help you look for expenses you can claim.
Through proper accounting, you can prevent your business from falling into a financial trap. It also helps you maximize your business expenditures for growing your operations or dealing with unexpected challenges.
4. Stay on top of your debt
If you took out a loan to finance your business concept, it is important to pay it off at the soonest possible time. That is because the longer you are in debt, the more you will need to pay in interest. Make sure you track your debt payments and see if you can negotiate better terms with your creditors.
In most cases, lenders would agree to lower your monthly payments so long as you show them that your business is experiencing hardship. From there, you can ask your lender if they can lower your interest payments or extend the term of your loan. Before anything else, however, you must have a solid negotiation strategy in place.
If you are using your credit card to pay for business expenses, you could end up paying more in interest. While credit card companies can use any legal means to force you to pay what you owe, you still have the right to defend yourself with the help of a debt defense lawyer. This legal professional can help you reduce how much you owe or even eliminate your debt.
Knowing how to deal with these debt-related scenarios can help you avoid legal traps and improve your business’s earning potential. More importantly, you also protect your business from going under before reaching the height of its success.
5. Review your assets and workforce
In times when the economic environment doesn’t seem to support the growth of your business, you may need to cut back on expenses that you may not need. In other words, you may have to give up certain assets that are too costly to maintain.
Doing an inventory should help you identify equipment and facilities that require more time and money to run. If you need to, you can start by selling off assets that are becoming liabilities and retain those that are still critical to your core operations.
When it comes to optimizing your workforce, you have a choice between eliminating redundancies by laying off employees and using automation to cut back on staffing costs. You can also opt to outsource tedious tasks to remote workers or introduce new tools and systems that improve the productivity of existing staff.
Upskilling is also an important strategy to consider, especially if you are in an industry where technology keeps evolving and employees need to develop new skills to keep up. By organizing upskilling programs, you eliminate the need to recruit new people, prevent employee turnover, and improve your business’s operational efficiency.
Knowing how much you spend on skills and equipment gives you an idea of how much you will need to give up or restructure so your business saves more money down the line.
How to Prevent Your Business From Bankruptcy?
Here are a few tips to prevent your business from bankruptcy:
- Build a solid business plan.
- Diversify your offers.
- Observe proper accounting.
- Stay on top of your debt.
- Review your assets and workforce.
A bankruptcy can hurt your prospects of starting a new business from scratch, so you should use the right approaches for keeping it financially afloat. Use these tips to protect your business from bankruptcy so that it stays profitable in the years to come.
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I am Adeyemi Adetilewa, a media consultant, entrepreneur, husband, and father. Founder and Editor-In-Chief of Ideas Plus Business Magazine, online business resources for entrepreneurs. I help brands share unique and impactful stories through the use of public relations, advertising, and online marketing. My work has been featured on the Huffington Post, Thrive Global, Addicted2Success, Hackernoon, The Good Men Project, and other publications.