One thing that every business owner dreads is the business running into bankruptcy. When your business is put in the legal spotlight of bankruptcy, it could mean several financial challenges. While filing for bankruptcy may wipe off your old debts, it will stay in your credit report for about 10 years. This means that lenders and other investors lose trust in your business or any other startups you may want to establish.
However, you should take bankruptcy not as a ‘game over,’ but as a way to start fresh and take advantage of future opportunities. After filing for bankruptcy, your priority should be to make your business recover. You have to be prepared, because there will be several challenges that you’ll have to deal with. For example, you need to rebuild your financial profile, which will take some time, and establish good credit.
Here are some of the best tips on how your business can recover from bankruptcy:
Re-establish Good Credit
The most critical step to rebuilding your credit is re-establishing good credit. Yes, this means taking on more debt — but doing so responsibly and paying it off on time. Depending on your circumstances, that might mean getting a secured credit card, taking out an instalment loan, or asking someone to co-sign for you.
Start by identifying the type of account you’re most likely to be approved for your credit score. Different scores have different implications, but generally, if yours is below 500, you’ll have trouble qualifying for much of anything until you go through the bankruptcy discharge process and start rebuilding your credit.
Some lenders specialize in bad credit loans and rebuilding your credit from scratch. Such lenders mainly provide installment loans for bad credit, and you can make smaller regular payments over a fixed time. You need to be careful about which types of loans you apply for and which lenders you choose because those decisions will impact your credit.
Ditch Old Business Habits
If your business went bankrupt, there’s a good chance that it was because of poor financial management and planning. If this is the case, the first step to a successful business bankruptcy recovery is to ditch old business habits — especially the bad financial habits. Effective bankruptcy recovery means embracing new ways of doing business, particularly when it comes to finances.
You’ll want to make sure that you’re making smart decisions going forward — this means keeping track of all of your spending, regularly monitoring cash flow, and having a sound credit card for business in case of emergency. Additionally, you’ll have to get organized and know exactly where your money comes from and where it goes. You’ll also have to create a budget and stick to it, so you don’t overspend as you did in the past.
Have A Financial Plan
The best way to ensure that your business can recover from bankruptcy is to have a financial plan. A financial plan is an essential part of reorganizing your business. First, make sure you have enough cash flow to cover day-to-day expenses and any debts or payments you may have. Keeping track of your spending and paying bills on time will help you avoid debt later.
If you need a loan, you should understand that finding one with an affordable interest rate and favourable terms after bankruptcy will be challenging. You may need to rely on family and friends, get a co-signer, or even take out a secured loan.
Also, you shouldn’t hesitate to ask for professional help with your taxes. An accountant can help you set up proper record-keeping practices to anticipate tax obligations in the future better. If applicable, this is also an excellent time to talk about setting up an Individual Retirement Account (IRA) or other retirement savings program.
Call In Outstanding Debts
If your business has any outstanding debts owed by customers or clients, it is time to collect them while you still have an opportunity. If you have already filed for bankruptcy, you might not be able to collect on these debts in the future. You have to pay off your suppliers first and collect any outstanding debt later.
Make sure that you have all of the appropriate documentation for each debt, including invoices, contracts, and other documents that show how much each person or business ow you. Keep copious notes about any discussions you have with the people who owe you money and keep track of what was said. If they promise to pay a certain amount by a specific date, make sure that this information gets documented so you can prepare for the upcoming payments.
Concentrate On The Business’s Best Customers
If you have declared bankruptcy, you must continue to make sales or provide services so that you can pay your creditors and employees. For this to happen, you need to focus on your best customers. Which customers are the best? The ones that pay their bills on time, of course! They’re also the ones who buy more than one product or service from you, and they’re loyal customers who come back again and again.
You must show appreciation toward those who have remained loyal before looking for new customers.A great way to reward your best customers is offering discounted rates. You can also choose a select group of customers who have been loyal through the years and offer them special privileges and discounts.
Try An “All-Cash” Budget Strategy
Don’t rely on credit for a while. In many cases, businesses go bankrupt because credit got out of hand — either by taking on too much debt or maxing out existing lines of credit. Try an “all-cash” budget strategy for a while where you only buy things that you have enough money in the bank to pay for right now. That means you will need to pay cash for everything — expenses, payroll, inventory — anything that would typically go on a credit card or be financed by a loan.
Although this can be difficult, it forces you to think about the long term and how much money is coming in versus going out each month. You will want to keep close track of your expenses and ensure you aren’t dipping too deeply into your cash reserves. This will help you avoid being buried by debt again and let you rebuild your business finances more slowly.
Filing bankruptcy can be difficult, but it is possible to bounce back. One of the most important aspects of that rebound is maintaining your customers’ trust. This means practicing transparency, dropping bad business habits, and having a financial plan to help your business recover.
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