Many business owners or entrepreneurs fear the dreary consequences of going bankrupt: aside from watching their dreams collapse, the end up surrounded by difficult financial circumstances. Any company who has previously gone through bankruptcy would highlight the importance of being alert to the early red flags and signs of corporate bankruptcy and insolvency. Being mindful of it allows executives and business owners to act before it is too late, and think about the aspects they can either improve or restructure in order to keep their businesses safe.
Suzzanne Uhland has previously covered the topic of corporate bankruptcy from a plethora of different angles; however, knowing more about this particular issue—which can affect all sorts of companies, ranging from well-established businesses to startups—is never too much. Thus, here are several signs business owners and entrepreneurs should keep in mind to realize whether they are heading towards bankruptcy and corporate insolvency:
How does the business look?
The first thing business owners should keep in mind is how their business looks. An inspection of a company can provide enough insight to determine whether it is close to the goals it strives to accomplish or any sort of financial insolvency. Oftentimes, when companies find themselves struggling, the signs of a possible bankruptcy and corporate deterioration are quite clear. Besides, another accurate sign is normally related to the overall mood within the company: every time employees start to show low morale, it is quite clear that something is not going according to the plan and must be revised before it is too late.
Do not fall victim of poor financial management
Every business endeavor regardless of size, require proper financial management. It is perhaps the cornerstone of its future performance. Every company requires a detailed financial plan and forecast to make sure it can move forward making the right decisions. Not paying special attention to the importance of having a detailed and well-crafted financial plan prevents businesses from planning accordingly, thusly failing in their attempts to accomplish their goals.
Always keep track of your records
Companies that manage to keep a healthy record of their financial activities oftentimes show a good sign of proper management and planning. In fact, this process is totally related with the overall health of a company. Every time companies start to show early stages and phases of difficulties, owners seem to be more prone to forgetting their books and records. Under today’s circumstances, it is no less than mandatory to avoid falling victim of disregarding the importance of keeping a well-organized record.
Never forget to pay your taxes on time
When companies face tough circumstances and difficulties they do whatever it takes to save their cash—and even improve their short-term cash flow—by delaying certain tax payments. Prioritizing payments is actually a “traditional” practice in the business world. Its convenience and suitability, however, is not as good as it sounds, for overdue payments often bring along much worse conditions than the ones that forced the company to do such thing in the first place.
Do not forget to pay other contributions on time
As important as paying taxes on time—and not falling victim of tax prioritization— paying other contributions on a timely manner is key. In fact, mandatory payments should be done regardless of cash flow, since avoiding to do so results in worse consequences. Overdue contributions bring along fines, and fines drain companies from cash and resources.
Do not be permissive with debtors
Many companies, especially those recently launched startups, lack proper management in this regard. Whenever a company sees debtors are not paying within the agreed period, it is perhaps too late to change such dynamic. Of course, large companies can afford the luxury of giving their debtors a much longer period of time to receive payments, but it is quite a bad idea to be this permissive and allow them to cancel their obligations outside the agreed term. Companies need to receive their money on time so that they can make decisions and move forward. In the case of small businesses, nonetheless, such permissiveness leads them to a total drought of financial resources, thusly failing at accomplishing their short-term oriented goals.
The bank overdraft
Not pushing the bank overdraft to its limits is perhaps the wisest thing to do. Whenever companies draw their bank overdraft on to its full capability, it shows signs of poor resources. Companies operating at their maximum overdraft may end up lacking enough resources for emergency situations.
Strive to maintain a good relationship with suppliers
This aspect is particularly crucial: as mentioned above, every time businesses possess a historical record of overdue payments to either suppliers or creditors, it ends up being placed on cash on other delivery conditions. Whenever suppliers change payment terms, it is because they sense that something is not going well with a particular company and that they have their concerns.
* Featured Image courtesy of Pixabay at Pexels.com