How to avoid Bankruptcy in Business

Tips for startups to avoid Bankruptcy

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Posted: 8/15/11 05:10 PM

Contributed By: Sandeep Bansal FRIEND HIM ON Twitter | LinkedIn | Facebook

In the initial stages of operations, most startups are trying to find an equilibrium between the factors that lead to the growth of the organization, and the threats. Amongst other things, one of these factors is the inflow and outflow of money... it is an accepted fact that the real mark of stability and longevity of a new business is established on the day when the company reaches break-even, and achieving that goal is no mean feat. If the outflow consistently gets higher than the inflow, than the only place the organization is headed is bankruptcy. A vigil eye on the debt and operating expenses is needed in order to avoid such a predicament, so what

revenue stream:preemptive measures can one take in order to avoid such a scenario? Here are some strategies using which it is possible to keep insolvency at bay and move towards a healthy

Work on your investor strategy
Think about where you plan to get your second round of funding from even before you acquire the first one, that's the level of forethought it requires to make it failsafe. Make sure that the concept on which the organization is based and the current state of affairs at any given time always look lucrative to the outsider. If you have a sound business plan and good team, your friends and relatives might want to invest in the company too, although you have to be careful with this because if the business fails, it might strain your relationship with them.

Negotiate well with the lenders
You are not the only one who has resources at stake in your business, your creditors are counting on it's success as much as you are. That's because once you go insolvent, you are no longer obligated to payback most of the money that you originally owed to the creditor (and nothing, in case of chapter 13 bankruptcy). Therefore, your creditors would be more than willing to reconsider terms with you, that's because little profit or little loss is always better than no return at all.

Allow customers the option to pay by credit card
When you give your customers the choice to pay by credit card, not only are you ensuring that you don't have to wait for your credit to be cleared and have the money coming right in as the sale closes, but also that it helps build up your credit history, on the basis of which you will be able to secure loans for your business at better interest rates. If you have a retail outfit, you could set up a point-of-sale terminal. If you have any business that sells products and/or services, you could set up a payment gateway on your website where a potential customer can make the sale.

Have an impactful website for your business
In order to increase your organization's efficiency, visibility and credibility, you have to make sure that when a visitor arrives at your website, he either makes a purchase, or at least goes away impressed with a brand recall. Websites these days serve many different roles, from sales & marketing to customer support and knowledge base – it is a versatile tool indeed, one that you should be making use of. The good part is that it's not too expensive either, it is perhaps that one thing which will give you the maximum ROI if done well.

Get a small business loan
A small business (also known as a merchant cash advance) has many benefits over traditional sources of acquiring capital. First of all, it has a remarkably quick processing time and the cash is credited into your account as soon as seven days. There is also no need of providing any kind of collateral because the loan is provided solely on the basis of your credit card sales history. Also, you don't necessarily have to have a good credit history. It's a great way to get that little extra money you need.

Reduce debt to the maximum extent possible
It's always a sensible idea to start out small even if you have big dreams about the future of your organization. Buy the necessary equipment required to get things rolling, and defer the purchase of that fancy sofa you want for the lobby. This is perhaps the best technique on this list, when your debt is lower, even an average inflow of income will keep you in the green zone. As anyone will tell you, nurturing a new business takes time, and in the beginning, it's far more important to just survive and find your place instead of going for everything at once.

Make use of collection agencies
The worst way to see a business go down is because of non-payment of what is owed to the business, since you can have the most perfect business model and yet if you don't account for this anomaly – you may hit troubled waters without any fault on your part. Therefore, maintain a list of payment defaulters and hand it to a credit collection agency so that you get rid of bad debt at the same time as it happens.

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