Company Bankruptcy 5 Ways & How to Avoid
Company bankruptcy occurs many times and the owners seemed shocked that it’s come down to meeting with the bankruptcy attorney. Occasionally, it is a sudden unexpected jolt that causes a less than agile company to implode. Yet more often than not, the signs and causes are easy to see and categorize.
Company Bankruptcy via Under Capitalization
Under Capitalization is a fancy way of saying “You didn’t have enough money to start this business.” A lot of entrepreneurs have wonderful visions. Yet, they don’t have the money they need to get it off the ground and keep it going.
Most entrepreneurs don’t have the expertise to manage venture capitalist or business loans. If they did, they’d be in the venture capital business. Make time early in your business’s life to meet with a professional Part-Time Controller or CFO to make such a game plan and avoid crashing later.
Company Bankruptcy via Bad Cash Flow Management
Your business is up and running and you’re busy growing. You’re buying things and getting paid for what you do. Suddenly you discover that you’ve run out of cash. Where did it all go? If it’s all tied up in inventory, accounts receivable and equipment, you have none left to pay employees, and creditors. This happens to successful businesses all the time.
Some rapidly expanding businesses know they’re making money, but in the end, they’ve run out of cash. For companies that don’t’ have a full time small business controller, a quarterly review with your Part-Time Controller or CFO will ensure that you don’t grow yourself out of business.
Company Bankruptcy via Poor Business Planning
You have money to start and you’re not growing so fast that you run out of cash. Instead, you just don’t capture enough sales or make enough money on what you do. This we call “a blurred business vision” or a lack of customer & product definition and no clear path to success. Meet monthly or quarterly with your Part-Time Controller or CFO to ensure that you have a valid track and that you stay on it.
Company Bankruptcy via Poor Administration
Companies that avoid the first 3 categories make it to become successful businesses. Unfortunately many fail to recognize business administration skills required to maintain a healthy business. Now that the business is successful, the risks of loss can be even greater.
Proper accounting and internal controls ensure that employees, vendors and customers don’t take advantage of your success. Essential contract management controls long term obligations such as leases and loans, purchasing agreements, or commissions and royalties. Your small business controller or a part-time CFO will handle these duties.
Company Bankruptcy via Poor IT Systems & Information Control
Companies outperformed by competitors disappear quickly during recessions or slowly muddle along and die. They may have a CPA or bookkeeper that has kept them out of trouble. Yet, they’re missing key information due to late, incomplete and lacking reports.
Business intelligence, financial analysis, CRM and VRM (customer & vendor relationship management) are the tools that allow companies to blow out the competition. Proactive action on threats and opportunities sets these companies apart.
Professional Business Intelligence Corp. is a consulting firm that helps small businesses become big businesses. In 2011, PBI Corp added Bankruptcy Attorney Support to dramatically speed up transactions so that more businesses can be revitalized rather than close. PBI Corp, located outside of Tampa, FL (near Brandon, FL) provides services throughout the continental United States.