When a business faces financial hardship and seems unable to recover, its owner will probably see bankruptcy as the only way out. Companies of all sizes are often pressed to file for bankruptcy due to considerable debts they can't cover. Nonetheless, this solution is typically considered by legal experts the last resort and it's not recommended to any company that has a hard time paying its creditors. There are several measures that can help companies avoid bankruptcy. Keeping accurate records and acting fast at the first signs of financial trouble is one way to keep bankruptcy at bay. And when it is too late to revive a business, there are other alternatives to bankruptcy that may be more convenient. Let's elaborate these options and see what measures should be implemented in order to avoid bankruptcy.
Maintaining a Cash-Flow Balance
Achieving a cash-flow equilibrium is essential for a company's financial well-being and future prospects and the key to maintaining the balance is proper planning and monitoring. The threat of bankruptcy often originates in a lack of liquidity. Of course, if a company has sufficient cash, it will not be threatened by bankruptcy. Therefore, it's important to have a minimum amount of cash at all times in order to keep the business afloat.
To maintain this critical amount of capital, the money inflow and outflow should be constantly monitored by tracking the inventory, accounts receivable and accounts payable. If the company is already in the early stages of the crisis taking immediate action can make things turn around. So, this is a good time to try to obtain more cash either by getting a loan, liquidating non-essential assets or cutting some expenses.
Making Decisions Based on a Business Plan
Every company needs a business plan, regardless of its size or domain of activity. A business plan basically states a company's objectives and the strategies that will help reach them, the company's organizational structure and required capital, the issues it might face along the way, as well as possible solutions to tackle them. All major business decisions should be made according to the business plan in order to avoid financial pitfalls. By consulting the plan, it's easier to understand how far the company can go to achieve its financial goals while maintaining the balance between expenses and revenue. A business plan is critical for the health of an organization as it simply helps the owner understand how to manage it better.
Opting for a Change of Management
A company whose future is at stake might be able to put an end to its financial trouble and start afresh under new leadership. Management changes often have a positive impact on a struggling organization because they allow other people to bring and implement new ideas that trigger innovation. If there is no room for change in the company?s organizational structure, at least there is the possibility to restructure and reorganize a business that is no longer profitable and heads towards financial collapse. Assigning key roles to different people in the company based on their vision and abilities can lead to a successful turnaround.
Keeping Accurate Financial Reports
Even a minor error in a financial report can lead to severe consequences if it's not discovered in time. One step in avoiding a financial crisis which can ultimately lead to bankruptcy is keeping accurate financial reports. To achieve this, it's necessary to double check any information entered in these records and make sure they are always completed in a timely manner.
Maintaining Good Relationships with Creditors
One measure to avoid bankruptcy is maintaining a transparent relationship with creditors, above all, secured and senior creditors. These are the most important ones in the order of priority and in the event of a bankruptcy, they are the first who get paid. When reporting to these creditors, it's necessary to focus on punctuality and transparency. Even if the news is not 'good' creditors should know the real numbers behind a company's performance. Failing to present the result accurately can only impair the relationship between a business and its creditors and diminish the latter's will to negotiate and show flexibility.
Considering Other Legal Alternatives
There are circumstances when a company can't continue serving its purpose in a profitable manner and its business simply loses viability. In this case, it might not make any sense to continue the fight and try to apply a turnaround plan. If liquidating a business is more appropriate than trying to revive it, the owners might want to opt for out-of-court bankruptcy alternatives instead of going through the traditional procedure.
One of these options is the assignment for the benefit of creditors, commonly known as ABC. This insolvency procedure is a popular choice among companies which try to avoid the costs of a bankruptcy. Another benefit is that the company gets to choose the assignee who will conduct the liquidation. ABC is also a faster alternative than traditional bankruptcy and it brings better results for creditors who get larger distributions.
Reaching Out to Financial and Legal Professionals
As soon as the first signs of distress start to show, it's useful to take into account the possibility of hiring a financial or legal professional who can help put the company back on track. A financial expert will immediately figure out how severe the problem is and how far the prospects of bankruptcy are.
Business owners may have difficulty in understanding all the different factors that influence their company's financials. But with the help of a lawyer who has experience in commercial disputes, it's easier to navigate inside the intricate mechanism of commercial law.
The experts at the Law Offices of Kevin S. Neiman based in Denver have a vast experience of successful financial litigation cases. If you are on the verge of filing for bankruptcy, they can steer you in the right direction and represent you either outside the court or during one of the traditional bankruptcy procedures that will suit your situation. Don't hesitate to contact the Law Offices of Kevin S.Neiman if your business is going through financial challenges.