For a business to stay operational, providing its products or services with the utmost efficiency, it has to have a stable financial base. Without a stable financial base and income flow, it becomes difficult for a business to tackle its various expenses, including paying employees, purchasing inventory, and paying creditors, clearing recurrent bills on time, and ensuring maintenance, among other things. All these are expenses that will affect the bottom-line in the long run. In the worst-case scenario, the business could easily be overwhelmed by debts, which is one of the most common reasons businesses close shop.
Whenever many people hear the word bankruptcy being mentioned, chills go down their spines. Going bankrupt is the last thing any entrepreneur would want to happen to their business. However, it happens and in most cases, it occurs due to the entrepreneur’s negligence or the lack of a solid financial and business management plan. One of the ways you can avoid it is by being keen on the warning signs of bankruptcy and taking control measures. So what should you be on the lookout for exactly?
Here are 6 signs that your business is going bankrupt.
1. Creditors Are On Your Neck
This is one of the biggest warning signs that the ship is sinking for your business. It is not uncommon for a business to default loan payments a few times within the loan term. Maybe you have a lot of big invoices owed to you and you don’t need to pressure your clients, or you’ve just hired a dozen more employees and you’re a bit short on liquidity. The back may call to remind you to keep up you’re your payments. However, if it reaches a point where your debts have been turned over to collectors, it may be time to rethink your strategies.
If you find such debts completely unmanageable, filing for bankruptcy can be a way out. However, this will depend on the country you’re operating in since there are different types of bankruptcy and the filing process varies from one country to the other. In the US, for instance, you have the option of filing under chapter 7 or chapter 13 bankruptcy, whereas in Canada, there’s only personal and business bankruptcy. All in all, filing bankruptcy can be a great way to get financial relief if your business is completely unable to take care of its debts.
2. Invoices Are Always Paid Late
If you find your business always relying on new revenue to cover old invoices, then it could be a warning that you’re headed toward liquidity problems. There’s nothing wrong with a few late invoices once in a while but when it reaches a point where your vendors are always calling to get you to approve invoices so they can be paid (perhaps you approved them weeks ago), it’s never a good sign.
3. Payroll Is Frequently Lagging
We can never overstate the fact that employees are your business’s biggest asset. Without being compensated on time for their work, they become less motivated, and this affects their productivity. In the long run, it affects your revenues/profit, and this is never a good thing as far as liquidity is concerned.
4. Layoffs Are Becoming a Regular Solution
Especially for bigger companies, layoffs happen all the time. But if you have to regularly resort to layoffs to cut expenses and keep your business afloat, it could be a sign of financial distress.
5. You Often Need Loans Secured By Personal Assets
Well, there’s nothing wrong with using your personal assets as collateral to acquire capital for your business. However, this is never a good sign if you need to do it often. As a matter of fact, it could send both you and your business into a rabbit hole of debt, which can end up overburdening you.
6. You’re constantly defaulting Bill Payments
It is not unusual to miss or forget a bill every once in a while. However, if this occurs too frequently, it might as well be a sign of financial distress and it’s headed to liquidation. This is especially when it comes to taxes and other crucial bills such as business property rent and utilities.
Finally, having constantly dissatisfied customers and a diminishing reputation can also be a sign that your business is headed toward closure. The good thing is that if you notice these signs and take action early enough, you can actually avoid going bankrupt and save your business. Always work with financial advisors, accountants, and business lawyers to keep your businesses at a financial vantage point.
I’m a 20-something stay-at-home mother and wife. I have an amazing husband, a beautiful daughter, two loving dogs, and a lazy cat. I wouldn’t change my life for anything! I love to read, listen to music, cook and blog!
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