Avoiding bankruptcy at nearly all costs
January 10, 2013
For most small business owners, finances can seem a little tight at times. However, many leaders have tips and tricks they follow to not let it get so bad that they are spending more than they're taking in. This may go unnoticed for some time, though, which could result in a large downward spiral.
Makings a few mistakes could result in companies spending large amounts of cash without having the sales numbers to back it up. Before he or she knows it, the owner might be forced to file bankruptcy. However, most professionals would advise against this - filing Chapter 7 can have more long-lasting, negative results than cutting certain expenses and avoiding bankruptcy altogether.
Consider altering prices
One of the first and potentially easiest things a business leader can do is alter the pricing strategy to draw consumers back into the company if interest has waned or the economy has slid. According to Entrepreneur Magazine, this tactic was crucial for Fatburger CEO Andy Wiederhorn after the business floundered.
Wiederhorn told the news source that when the recession began, most consumers scaled back their spending, so the company took a big hit. As such, they lowered the prices on their burgers, which the magazine said represented an attempt to draw in loyal customers again.
When a business is looming on bankruptcy, the owner needs to consider how he or she can reduce all expenses. The Houston Chronicle suggested that altering contracts with vendors is often a good place to start. The leader can ask suppliers if they can pay for goods on a consignment basis, meaning that they will pay for inventory per shipment, rather than giving a set amount of money each month. This can work out well for both parties - there is less of a risk that the contract will be breached and the supplier go unpaid if the small business owner can pay in this manner.
Monitor cash flow
Many business leaders believe that accounting software is effective for the sole reason that it can help automate transactions and allow for remote access at anytime. However, these types of programs have many other benefits. Notably, they can give the company owner a real-time look at the firm's economic standpoint, accounting for all expenses and income flows alike. This can greatly help the administrator keep track of where the business is at and ensure that expenses never outweigh income.