How To Avoid Bankruptcy In A Small Business
Bankruptcy has become a very common term in recent times. It is something that most people try to actively avoid, especially small businesses. Mostly a product of recession and sometimes of bad business decisions, filing for bankruptcy not only adversely affects your worthiness and credibility as a business owner; it is also likely to affect future business prospects. Small businesses lack the huge capital backing most corporate enterprises have and thus are far more likely to file for bankruptcy. More often than not, lack of proper financial planning is at fault. The following tips may prove successful in avoiding bankruptcy:
- Have a proper financial plan: Before diving heads first into any business venture it is extremely important to have a properly laid out business plan. It should keep in view all the requirements and prepare of any and all contingencies, that may arise in the future and that the business might be faced with. A good idea is to have a precise budget and to stick as close to it as possible.
- Bank loans: one of the most common financial resources for a small business is a bank loan. Remember, whenever applying for a bank loan, never apply for higher credit than you actually require. The higher the loan the higher the interest and the easier it is to acquire debt. While emergencies and necessities are kept under consideration, luxuries should be kept at bay. Another important thing about bank loans, never take out loan for the repayment of any other debt. You will gradually disappear under a heap of unsecured debt.
- Keeping Costs: What some small businesses fail to understand and then suffer for is that it is imperative to keep costs low. Every penny saved is every penny earned. Keeping a track of any and all expenses however small will go a long way in helping cut back on wasteful expenses and also keep costs at a minimum.
- Punctuality: Be it timely payment of any loans or card balances, or tax payments, punctuality is vital! It will help avoid incurring large debts in terms of interest fees and also prevent you from getting an asset penalty from the IRS. Always check and ensure that you are a tax-clean person.
- Separate Accounts: a big and a very common mistake that small business owners tend to make is maintaining a single account for business and personal finances alike. Make sure that you do not use your business funds for personal expenses and vice versa. It could be cause of lethal consequences and in case of situations of unsecured debts or imminent bankruptcy you can save your compensating amount from the clutches of hounding creditors.
Be transparent in your financial dealings and about your financial status. Keep them squeaky clean and if you are truly facing a financial crunch, be sure to provide substantial proof and legitimate causes. Avoiding bankruptcy is not as difficult as it may seem, a rational and open mind is all that is required really.