Each year, bankruptcies are filed by individuals and companies for varied reasons. In the U.S., the rate was up by 46 percent in 2015 with the challenging energy sector as having the most filings based on a report from BankruptcyData.com.
The Q4 2015 Business Bankruptcy Filings Report noted that in 2015, 79 publicly traded companies filed for Chapter 7 or Chapter 11 protection. Of the 10 largest Chapter 11 filings, eight were from companies in the oil and gas as well as mining industries. The rate, however, is said to have decreased by 12 percent to 24,985 from a high of 28,319 in the year 2014.
Meanwhile, Forbes reports that eight out of 10 entrepreneurs go out of business in less than two years. This is mainly due to financial difficulties such as when sales drop, cash is short and there’s more borrowing than revenue coming in.
Businesses should see the signs ahead of time before making a decision to file for bankruptcy. Any financial problem must be dealt with as soon as possible to avoid it getting worse and affecting more people.
Manage Your Spending
As debt is often the root cause of an organization’s financial problem, business owners and managers should be responsible for finding a solution. Discussing the issues including the budget and the company’s needs is a must. An ideal way to manage this problem is to look into the organization’s spending, cash flow and objectives.
Another ideal step to take is to create a budget and project your cash flow for the following year. Estimate possible costs of problems related to your workers and determine your assets and liabilities.
Call Your Lawyer
Seeking professional help is also essential if you feel your company’s finances are already unstable. A financial advisor can provide professional advice on your specific situation. However, a lawyer is also important as he or she can guide you on the legal steps to take should you eventually decide to file for bankruptcy. A bankruptcy lawyer, in particular, should be able to advice you on the best steps to take to avoid filing for Chapter 7 or 11 such as in communicating your issue to your creditors and proposing a work-out arrangement.
Working with an attorney will also ensure that you do not violate bankruptcy laws. Be mindful not to transfer any money or pay off a favored creditor while you’re still discussing possible solutions as these can be considered fraudulent by the court.
Protect Your Assets
Businesses must also make it a point to protect their assets right from the start. In the U.S., every state legally protects certain assets from creditors the reason why a company needs to be knowledgeable about the laws in the area where they operate.
Meanwhile, enterprising people still in the planning stage can form limited liability corporations or LLCs which can legally own assets. According to some experts, this is a better option than a joint or sole ownership type of business.
Be Honest to Your Employees
Finally, be honest to the people working for you. They have the right to know the real situation and you can even ask their suggestions on how best to cut costs and improve efficiency.