5 THINGS YOU CAN DO TO PREVENT BUSINESS BANKRUPTCY

Hope is Not Lost
You may have decided that the only choice you have left is to file bankruptcy, terminate your employees, and lose the business you have worked so hard to build.

Note: Most businesses start considering bankruptcy because:

• They can no longer meet their financial obligations
• Everyone has stopped extending credit to them

However, you can activate an aggressive plan to stabilize your business or at least get it above water.

1. Identify immediately the major sources of Stress or Failure
You have to determine the real reasons of your financial problems and address them with a bold and practical action plan. If for example the lack of new customers is the problem, then you must wipe out your entire marketing strategy and do something else. You cannot continue to travel on the same direction with the same people and expect things to change.

2. Increase Cash Flow immediately to meet short-term financial obligations:

• Implement an aggressive account receivable collection program (Everyone who owes you money must receive an immediate notice
• Reduce creatively inventories to generate cash (offer discounts up to 90% off if you have to. Every little dime counts at this point. If your business were to fail, you will still end up liquidating everything. So might as well do it now.)
• Establish priority payment on accounts payable to conserve cash (unless it’s utilities and building costs, everything else can wait. Call every creditor, explain the true situation and workout postdated payments with them)
• Consolidate all purchasing if possible to generate immediate savings

3. Reduce Operating Costs as necessary
You have to activate an emergency cost structure that will eliminate all non-survival expenses. This structure will stay activated until the business is financially sound again. Things like supporting the local basketball team or paying for lunch for your employees have to stop immediately. Principally, all “Goodwill” expenses have to be eliminated. Additionally, all of the non-essential employees have to stay home at least temporarily.

4. Review Pricing Structure and adjust as necessary:
Your pricing structure may be so unrealistic that you could be losing in every product you sale or every service you provide. Perform a complete analysis of your pricing strategy and determine which products/services are your moneymakers and which are draining your bottom line. Here it’s all about Gross Margin Analysis. If any product/service doesn’t provide at least 70% GM, you have to eliminate them from your offerings or at least stop selling them for the time being.

5. Get a Business Loan if necessary
It is possible that you have used all of your credit line and every bank has turned you down for a new loan.

Sometimes, your bank may refuse to extend your credit line because:

• They believe you won’t make it
• You don’t a comprehensive and effective strategy in place to sustain your business long-term
• Your management system lacks credibility

However, you can turn change their minds by modifying your business model and overall management systems:

• Develop a bold and believable growth plan
• Bring in experts in your industry who have managed such growth (this will help you establish credibility)
• Start to speak their language instead of yours (use the financial analysis tools they use and interpret them in a way they can understand and believe)
• Give them short-term specific milestones you will achieve tied to comprehensive performance evaluation systems (This is will give them some type of control)

Most bankruptcies can be avoided. It takes creativity, and comprehensive overhaul of all business systems.

To your Success!