The COVID-19 global health crisis has put a myriad of businesses, economies, and lives into a tailspin. Many businesses around the world have temporarily closed to prevent further losses, while others have declared bankruptcy and have been forced to close down altogether.
The pandemic has been a challenging time for everyone. It has forced employees to work from home, students to switch to distance learning, and businesses to adapt more or less overnight to keep their heads above water. During this time of crisis, companies must meticulously plan their next steps in order to survive, and hopefully to thrive.
Below, take a look at the complete guide on how to prevent your business from going bankrupt.
The Business Bankruptcy 101
If you find yourself unable to pay your debts, it’s time to reassess your situation to avoid bankruptcy. In Australia, there’s no specific amount to be considered for bankruptcy applications. You only need to:
- Volunteer or self-file for bankruptcy
- Have a business or residential commitment in Australia
According to the Australian Financial Security Authority, you are assigned a trustee once you file for bankruptcy. This person will assist you in processing your possible options to proceed with the application such as:
- Details of your debts
- Notifying your creditors
- Selling some of your assets
- Ordering you to make compulsory payments
Bankruptcy will have a serious impact on your life. Make sure that you know the different rules and processes for bankruptcy wherever you are in the world.
Bankruptcy Warning Signs and How to Prepare
It's crucial for business owners and executives to regularly review the finances and be aware of early warning signs that the business is in immense financial distress. Spotting these spells the difference between filing for bankruptcy and losing the entire business. Here are some tell-tale signs you should watch out for.
- A consistent decrease in cash flow
- Failure to meet debt payments, such as loans and lease
- Difficulty meeting payroll
- Business executives using their personal money to satisfy debts or payroll more frequently
- A slow inventory turnover rate, meaning not enough sales
- A significant drop in accounts receivable
- Key management or employees leaving the company one by one
Tips to Help Your Business Bounce Back from Financial Distress
- Focus on your loyal customers
If your business is starting to face financial challenges, shift your focus to your most loyal and profitable customers. Continuing to satisfy those who always pay their invoices on time can be an excellent way to improve your cash flow. You can try expanding the services you provide for your existing customers to increase your earnings or use invoice financing services to access cash before your customers have paid their invoices.
- Calculate how much you need monthly
One of the first things you'll do as you work through your business finances is to figure out how much you spend each month and the fixed expenses you need to cover. This will highlight any unnecessary outgoings, as well as opportunities for cutting costs.
Once you've got a number, ask your creditors whether it's possible to reduce your monthly payments, or if they can offer you a more viable repayment plan. Then, you can work your budget from there.
- Reduce business expenses
Take a look at your rent, utilities, income tax, interest expense, and other business expenses to see if there's any way that you can cut costs. For instance, you can move to a smaller office and assign half of the company to work from home, reduce office hours to save utility bills, or lay off some employees (if necessary) — as long as the decision will not affect your operations significantly.
Wrapping It Up
Expect that getting your business out of a tough financial situation will be a difficult and challenging time. You must keep a clear head in order to make well-informed decisions and to do what is necessary to save your business from going bankrupt.
If you're looking for financial solutions for extra wiggle room, Earlypay can lend you a hand. Earlypay offers invoice finance in Australia for businesses of all shapes and sizes. Their flexible loans can help free up your cash flow to help your business get back up and continue growing. Contact Earlypay to learn more today.