You have a thriving business – a burger joint that started small but is now a hometown favorite. You always make sure customers enjoy their meal and leave your store with bellies full and hearts content. However, you are on the edge of your seat. You lie awake at night thinking how you can improve your business.
With the rise of obesity, some of your customers switched to healthier food alternatives. You notice the decline in your sales, and you begin to wonder if this is the end of your business. The market plays a big part on why business bankruptcy happens. Luckily, there are modern business practices you can apply to avoid it.
Why Do Businesses Go Bankrupt?
Every business is at risk of going bankrupt, which is why business owners must be prepared for challenges that may come their way. Business bankruptcy happens due to many reasons.
Shifts in market trends. Market trends always change. Your business can be the most popular brand today, but your customers can shift their attention to a competitor any time. Companies must be able to react to those changes and make them work to their advantage. However, those who are not able to meet changing target market needs tend to go bankrupt.
Overspending. Spending too much may deplete your funds. Avoid expenses that do not help the business. As much as possible, cut down on costly expenditures. Your company will end up going bankrupt if you fail to prioritize how to spend your money.
Revenue decrease. Profits help fund daily business operations. If you notice declining revenues, you need to act quickly and figure out how to increase it. Revenues often decrease when customers shift to another company or they do not have a use for your product anymore.
Lack of management skills. Managerial skills are essential to help businesses achieve their targets. However, mismanagement prevents firms from attaining growth. If you place your trust in an incompetent manager, your company might be affected.
Incurring too many debts. There is nothing wrong with borrowing money from creditors. However, you, as a business owner, must be able to put the money to good use. You must invest to improve your business, so you can use the money to make it work for you. If you incur too many financial obligations without adequately planning on how to allocate them, you might go bankrupt.
What Kind of Bankruptcy Is Ideal for Your Business?
Sole proprietorships, partnerships, and corporations are at risk of going bankrupt. Each kind of business has an appropriate type of bankruptcy:
Sole or single proprietorship. Sole proprietors are legal extensions of the business. It means they have responsibility for its suppliers, customers, and creditors. If you are planning on filing for bankruptcy, you may submit a Chapter 7, Chapter 11 or Chapter 13 bankruptcy.
Partnership and corporation. Owners of partnerships and corporations are separate legal entities. Therefore, they have different legal obligations to their clients and creditors. If you are filing for bankruptcy, you may file for Chapter 7 or Chapter 11 bankruptcy.
Practices to Avoid Business Bankruptcy
Avoiding business bankruptcy is a little tricky. Business owners must be vigilant in keeping tabs on the market, their competition, and their revenues to thrive. These modern business practices may help in reducing your business’ risks for bankruptcy:
Diversify. Diversify your product line. This practice will help your business cater to a broader range of consumers. If your current clients have new needs, you can create products that cater to those demands. This way, they remain your customers.
Innovate. Look out for needs that your customers are not yet aware of. Put on your thinking cap and use your creativity to create products that are new to the market. Sometimes, businesses need to dictate to their customers how their products can benefit them. Otherwise, launching a new product that you cannot effectively market is just a waste of time.
Use technology. Technology plays a significant role in businesses today. The use of apps and smartphones help companies reach out to billions of people. Most consumers are already online. Therefore, adding technology to your business processes can help you generate more revenues.
Generate more income. There are many ways to generate more revenue. Businesses can sell the assets they no longer use. They can also think of ways to improve their products so they could add more value to their clients. You can also invest your excess funds into something that can make your money grow.
Consult with your lawyer. Lastly, if you are running out of ideas, you can directly ask for legal advice from your attorney. Ask for his or her opinion on whether or not you should file for bankruptcy and start fresh.
Business owners must not get frustrated when they notice signs that their companies are heading for bankruptcy. Instead, they should embrace the challenge and find ways to improve their businesses with the help of a lawyer like the ones here. Innovation and technology can help them start anew. These challenges are merely setbacks, but with the right business practices, you can prevent your company from experiencing business bankruptcy.
Bella Flanagan
Bella Flanagan has dedicated much of her life to law, and her pieces as a writer are imbued with her wisdom obtained from over 20 years of experience in business. Bella enjoys hanging out with her grandchildren when she has the free time.