Small Business bankruptcy
The consequences of small business failure are usually bankruptcy. The sad part of this is that bankruptcy is usually avoidable and most failures are due to poor management training skills and a lack of understanding of the fundamentals of setting up a small business.
Defining Small Business Failure
The definition of small business failure is when a business:
- declares bankruptcy because it can no longer meet its financial commitments, or
- closes down because it is insolvent and cannot trade profitably.
Closing a business for medical and personal reasons is not considered business failure as long as it is not associated with financial problems.
What are the Consequences of Small Business Failure?
Not all small business failures end up in bankruptcy. Many negotiate deals with their creditors, e.g. 80 cents in the dollar. Then the company and, in some cases personal, assets are sold off to cover the company?s debt. The type of debt settlement plans you put in place will dictate whether you need to declare bankruptcy or not.
It is when creditors are not willing to accept a deal or have lost faith in your ability to pay they may sue and force you into bankruptcy.
The biggest small business failure, apart from the financial side, is the failure of your dreams.
How do Small Businesses go Bankrupt?
Business management is thought to be the most common reason businesses fail, and more than 50% of new businesses fail within the first 5 years. This combined with external influences makes it difficult to survive unless you have good education and good business planning behind you.
It is not just bad debts, stock that sells slowly, poor planning and lack of profits that will send a small business bankrupt. These factors may contribute, but without building the essential foundations of your business from the beginning, you can doom yourself to small business bankruptcy.
The small businesses that survive have several basic things in common:
- good business plans
- good financial structures and record keeping
- good marketing strategies
- good managerial skills
- good understanding of their market
- are flexible
Often we are so focused on sacking our bosses we do not look at the full logistics of going into business. It is a mistake to go into business without a corporate training and clear understanding of what or how to achieve your goals.
Avoid Small Business Bankruptcy
Did you know it was possible for most small businesses to avoid failure? Steps you can take include plugging any gaps in your knowledge ? complete management and communication training, learn basic accounting skills and software packages; learn small business basics like how to plan your business and marketing strategies. Give yourself the best chance to start your business off the right way.
Most people work for themselves to achieve lifestyle balance and, if you are not careful, you will find yourself working harder than ever. While in the first few years the reality is you will work harder and longer hours, but with good strategic plans, management training and marketing you will find yourself spending less time in your business. For example, if you a web designer, your prices will be very competitive in the first few years. This gives you the opportunity to prove yourself and to earn a reputation and build a portfolio. The more popular you become the more selective you become about your clients and your prices can rise to reflect the demand for your work.
Here are some tips to create a stable small business that can help to avoid bankruptcy:
- Do your planning. Do not neglect to continually revisit your business plan to ensure you maximize the opportunities that arise in a changing marketplace. To avoid small business bankruptcy you need a flexible attitude so that means flexible planning.
- Be systematic. Put systems into place that makes running your business easy and less time consuming. Systems will make it easy for you to keep track of what happens in your business. It also makes it easier for someone to step in and run it if ever needs be.
- Keep records. Document everything to do with your business. It could become marketable intellectual property one day and it saves you a lot of time at the end of the financial year.
- Hire good people. Having excellent people in a happy, well-adjusted workplace can be the difference between failure and success. Investing in the right people can help your small business avoid bankruptcy and build better relationships with your customers.
- Stand out from the rest. What can you do that makes you stand out from your competitors? How good is your customer service? Why should people choose your business? What makes you better?
This is a simplistic view, but these are the basic principles behind any new business. Arm yourself with knowledge and take on the business world without fear of failure or bankruptcy.
