Some studies say that an amazing eight out of ten American businesses fail within their first year. With a failure rate that high, it is incredible that anyone starts a business at all. Thankfully, there are hard working dreamers out there who disregard the statistics, put in long hours and hire amazing people to create companies to employ, well, us. How did these entrepreneurs keep their businesses afloat?
Read on to discover tips to avoid business bankruptcy.
Write a detailed business plan
Before you purchase a neon sign and order T-shirts with your company’s logo, write a comprehensive business plan. Writing a plan not only will help you get a small business loan, but it will also make sure you have thought everything through before signing a lease for a storefront. Part of the business plan includes writing out your financial projections.
While some of these numbers may be theoretical, the expenses you will be encountering should be easier to determine. Try to include every type of spending you can think of when writing these forecasted income statements for your business. Besides looking at large items like rent and inventory, try to determine how much legal costs will be and insurance for your business. Don’t forget the small things – the toilet paper, coffee, and paper clips. The more detailed your financial projections, the more you will understand how much income you need to bring in to break even.
Track every expense
Treat your business expenses the same way you treat your personal expenses. Know where every dollar goes in running your business. Organize each operating cost in one of the following categories: rent, utilities, equipment, fixtures, inventory, licenses, marketing, professional services, payroll, and insurance.
If your income is not meeting your expenses, analyze your expense categories to see where you can cut back. This may require you to make difficult choices. Should you spend less on marketing or cut back the hours of your favorite employee? Ask yourself if you really need a cleaning crew or can you hire your kids to come in once a week to dust the office furniture?
Hire good sales professionals
Sometimes a person who starts a business has a good idea for a new product or service, but he or she may struggle in actually getting customers. It doesn’t matter how helpful the facility is or how innovative the product if you don’t attract customers you will not stay in business. Outsource professionals who are at the top of their industries and give them a commission.
Make changes
Everyone has heard the adage that the definition of insanity is doing the same things over and over and expecting different results. Even though psychologists may argue that this is most certainly not the real definition of insanity, for a business owner, this illustrates a point. If you are not making a profit, don’t assume that not making an advantage over a more extended period of time will help. It’s simple really. You have to either cut expenses or make more money. Period.
Negotiate with your creditors
If you are certainly facing bankruptcy, tell your creditors. Be honest with them about your difficulties in paying your debt. Ask if they are open to a payment plan. Perhaps your creditors will be refreshed by your honesty and be willing to have a dialog with you on how to keep your company afloat.
Seek advice from other business professionals
Seek out the help of professionals. Have a fresh set of eyes look at your books to see where you can save money. Ask a marketing expert about how you can get more customers. Perhaps your location is not appropriate for your business. Ask the advice of a realtor to see if there is another location within your city that would be more appropriate for your business venture.
Talk to your employees
Have candid discussions with your employees. Ask if they have any ideas on how to cut expenses for your business. Find out if any processes can be streamlined so they can focus more on bringing in more profit. Do not be upset or surprised if your employees offer critiques. If you need bankruptcy help, you need to put your pride in your back pocket and seek out as many fresh ideas as possible.
Talk with a counselor
Financial stress can be a difficult thing to manage. Don’t spend sleepless nights worried about your business. Talk with a counselor on how to handle your stress. Make the financial decisions you need and move on with life.
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