4 signs your small business is in danger of going bankrupt

By Anica Oaks

Managing your company’s finances is as important a task as serving your customers. Without good financial management, even the most stellar company can find itself in an economic ditch where bankruptcy is needed to resolve financial problems. Here are four traits that all bankrupt companies have in common that serve as a warning signal to any business.

Dwindling revenue

In the course of a few years, it’s not unusual for business owners to have many quarters of high revenue and a solid profit, but then, suddenly find themselves in a hole because of a changing market. You may face new competitors, competing products or a whole change in the consumer culture that can cause your revenue stream to dry up. Even economic conditions that affect society as a whole can cause your revenues to drop. Savvy business owners have their eye on the marketplace constantly and are always ready to find new markets and make the changes needed to adjust to changing economic conditions. Those who don’t do the marketing and research often find themselves in bankruptcy court.

Heavy debt loads

Borrowing money is an important tool in helping your business to grow. You may need money for new types of equipment, a bigger workforce or for increasing your presence in the marketplace. As in your personal life, borrowing strategically can help your business to take advantage of opportunities and grow continuously. However, mistakes in the amounts and types of borrowing can lead your business into financial disaster. Always make careful calculations of how your will recoup sufficient funds to repay your business loans, to avoid problems with repayment and the threat of bankruptcy. A business credit risk management service can help to ensure your financial stability and repayment of debt.

Low asset reserves for emergencies

When a business owner fails to plan for business emergencies, the economic stability of the company can fall into the danger zone. Unexpected lawsuits, natural disasters, equipment breakdowns and sudden increases in demand can drive a business further into debt and jeopardize its ability to move quickly, as market conditions demand. Your emergency fund helps to cushion your business against the vagaries of the marketplace and surprise events.

Uncontrolled expenditures

When a business is doing well, with money flowing in smoothly, business owners may begin to make decisions as if revenues will continue in this way forever. They may add more staffing, increase benefits and perks, as well as takes out more money for their own use. If not carefully planned, these actions can spell disaster for the company, when economic conditions change, leading to rapid depletion of cash and an increase in borrowing to cover costs. If you feel optimistic, think carefully before adding more expenses to the business, and have a plan of action if your revenue stream decreases.

When these four features come together, your business is vulnerable to any change in economic environment that may occur. Careful attention to cash management, debt management and growing expenses can help you to minimize the losses that sometimes drive companies into bankruptcy. Manage them well, and you can sustain a solid position, regardless of unexpected conditions.

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Anica Oaks is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks.

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