3 Ways to Avoid Small Business Bankruptcy
The US’s largest specialty toy retailer -Toys ‘R’ Us- has filed for voluntary filed Chapter 11 bankruptcy becoming the latest victim among struggling brick-and-mortar stores. Despite its popularity among holiday shoppers, kids, and parents the iconic store lined with every Power Rangers, Barbie, and Little Pony toy imaginable has been struggling for years to compete with Walmart, Target, and more recently Amazon.
Toys ‘R’ Us was bought out by private equity companies in 2005 and now has accumulated $4.8 billion in debt and is unable to pay suppliers. Sales have steadily declined since 2012, and despite their efforts to revamp their website in 2016, they were unable to catch up on a decade’s worth of innovation.
Brick-and-mortar retailers succumbing to bankruptcy is not new. Unfortunately, it has become commonplace as the competition against online retailers continues. Here we will look at five ways to avoid small business bankruptcy.
1. Calculate Total Debt
It is important to determine how much you need to pay your creditors or your current debt burden. What is the bare minimum you will need to pay your creditors to avoid filing for bankruptcy?
2. Calculate Survival
In order to continue operations, how much will your business need to receive? For example, if your business requires $5,000 each month included an additional 20% to serve as a cushion in case of an emergency expense.
3. Cut Spending Costs
Go through your operating costs with your accountant or review expenses line by line. Check for any redundancies and eliminate any unnecessary charges that add no value to the company. Consider cutting travel by opting in for skype for meetings and seeking out cheaper packing and shipping options.
4. Accounting Software
Purchase an accounting software that includes inventory management. This will also help you find any additional problems and highlight exactly where your cash flow might be escaping. This program will serve as a second pair of eyes for your business accounting.
5. Re-Negotiate Loans
Let your creditors know your business is considering bankruptcy and you would like to avoid this if possible. By doing this, you will have some degree of leverage to lower your monthly payments. It is in the lender’s best interest that you continue to make your payments without filing for bankruptcy because your debt to them may be discharged.
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