When you’re having problems with your business and feeling that you can’t keep it afloat anymore, you have two paths to choose from. You can decide to ask for help file for bankruptcy. However, as much as possible, you should avoid filing for bankruptcy. Bankruptcy can leave a significant dent in your credit score, and you’d have to wait for years before it will be removed from your records. You will be unable to borrow money from creditors, you can only get an unsecured credit card, or would need to borrow from friends and family just to get by. The creditors won’t trust you, and they’re not to be blamed for the mistrust. They see you as someone who can’t handle paying back your debts.
Ways to Reduce Your Risk
1. You should have a lawyer
You need a lawyer not only when you’d need to file for bankruptcy, but also when you need to prevent it from happening. Lawyers are experts when it comes to dealing with finances as they know the ins and outs of the financial law. A lawyer will give you your most needed help to understand the banking and finance law. When you have a lawyer, he/she can also help you avoid drowning yourself in debt and will stop you from entering agreements that may cost you.
2. Make sure to get your budget in order
Sit down and take time to assess your finances. Evaluating your budget will help you organize everything, and will help you prepare for anything.
Getting your budget in order will let you:
- Check whether your earnings enable you to pay your bills
- See if you can provide sufficient wages to your employees
- Figure out areas where you overspend and underspend
- Check if you’ve been earning or losing money
- Figure out if someone has been stealing from you and your company
- Check if your business and personal finances have been overlapping
- Figure out if your purchases have been overpriced
- Withstand crisis if any occurs
- Let you see what you’re doing wrong and doing right
3. You should put together an emergency fund
One of the surefire ways that would get you in debt is not having a contingency fund when an emergency arises. When you’re earnings are low, or a tragedy has hit your business, an emergency fund will help your company survive.
If you don’t have an emergency fund, you’ll be forced to borrow money from creditors, family, and friends. If things don’t improve for the upcoming months, you’ll be forced to borrow again and again. Doing this repeatedly will not only drown you in debt but will also make you look bad to the people you’ve borrowed from.
4. Slowly try to eliminate your debts
It can’t be preventable that when you’re still starting, at times, you’d need to borrow money. However, you should never neglect your responsibility of paying them. Don’t wait until things get serious and you’ll be forced to miss your payments.
How to eliminate your debts:
- Stop borrowing more money until you’ve paid for your old debts
- Allocate more funds to your payments
- Ask your creditor for a lower interest rate
- Go through credit counseling
- Minimize or avoid unnecessary spending
5. Pick up another way to earn.
There are two ways that you can slowly pay your debts; it’s either you minimize your expenses or find ways to make more money. Looking for ways to earn more will help you pick up the slack where your business can’t. You can use the money you receive from your part-time job to pay for your personal obligations or to help you pay your debts.
Some of the jobs that you can do during your spare time:
- Travel agent
- Makeup artist
- Private fitness instructor
- Bank teller
- Freelance writer
- Freelance graphic designer
- Life coach
6. You should check your credit report from time to time
Your credit report will give you detailed information about your credit history. Checking in from time to time will help you figure out if there are things that are faulty.
Checking your credit report will let you:
- Check if you’ve been a victim of identity theft
- See if you have forgotten debts
- Make sure that your statement is clean
- Know that your credit information is accurate
- Give you insights what actions help and hurt you
7. As much as possible, avoid borrowing money from lenders and creditors
If it’s necessary to borrow money, you should go first to your closest family and friends. Lenders and creditors will let you borrow money, but in turn, you’ll have to pay it back with high-interest rates. However, your friends and family will be most likely glad to help you when you’re in a pinch without looking to earn interest.
Instead of learning ways to make sound financial decisions, bankruptcy has been used by many people too often. However, you should take all the necessary steps to avoid filing for one. Bankruptcy should never be your first option, and it should be the last thing that you’d ever do when you’re having difficulties in managing your business. You should see a bankruptcy lawyer for more information. Follow these steps above, as much as possible borrow money only when necessary, manage your finances as much as possible, and spend your money wisely for your business to become successful.
Gail Wilson has more than 12 years of experience under her belt when it comes to business, which she is currently sharing with her clients and peers as part of the law industry. She writes pieces on various law topics that she hopes could help the common reader with their concerns. A family oriented, Gail loves spending time with her husband and two sons during her free time.