Good money practices help a business grow and keep its owner debt-free. While filing for bankruptcy is one way out of a company’s money woes, it has a negative impact on the owner’s credit score. A business owner should only consider it when caught between a rock and a hard place. This guide identifies five ways that can help small businesses avoid bankruptcy.
1. Stay on Top of Payments
The task of the Internal Revenue Service (IRS) is to ensure that individuals and companies comply with tax laws, including timely and correct return filing. The IRS can audit any tax returns of a business that were filed within the last three years. The statutory board can also collect unpaid taxes going as far back as a decade. Good tax habits allow business owners to maintain a good credit score and avoid penalties.
Late fee payment leads to poor relationships with vendors and lenders. Suppose a business owner is always short on money at hand or late for payments on business-related expenses. In that case, they should consider hiring a financial manager or using various online services to help them stay on top of payments.
2. Perform Inventory Management
Research indicates that approximately 70% of all business partnerships are unsuccessful. It’s often due to bad money habits arising from poor inventory management. Paying close attention to inventory costs provides a business owner with clarity in their financial planning by identifying any inventory abnormalities. Moving large amounts of products can cause disparities in inventory counts, such as employee theft and inaccurate order picking.
Small businesses understand the strain of low cash flow and with inventory management having such a significant impact on finances, having a system in place is key. Spend money on high-performing products rather than storage for lower-selling ones. Keeping stocks moving helps business owners avoid price volatility. It also helps them track sales, shipments, and production.
3. Cut Down on Costs
Production costs have a direct impact on pricing. Customers are more willing to buy an optimally-priced product than an overpriced one. Outsourcing can be a great way to reduce production costs and, subsequently, product prices. Making strategic partnerships with similar businesses and creating an alliance can help reduce supply chain costs. Decluttering and organizing help maximize office space; rather a small functional space than a large office space.
Cutting down on unnecessary expenses while maintaining the business’s competitive edge and increasing profits will see to a company’s success. For good use of business funds, business owners need to keep work expenses separate from personal funds since personal indulgences can be cut into business funds.
4. Negotiate With Creditors
Money hardships have led businesses to fail. In fact, 25,227 American companies filed for bankruptcy in the second quarter of 2016, up from 24,797 filed in the first four months of the same year. Good debt management, on the other hand, keeps a company afloat.
Banks and other lending institutions may be willing to negotiate for friendlier terms such as reduced interest and smaller installments. However, before signing on the dotted line, business owners need to go through the fine print to ensure that the creditor’s terms and conditions are agreeable. Business owners also need to take advantage of hardship programs that lending institutions provide for small companies. These include debt relief and government grant programs.
5. Collect All Outstanding Debts
When a business offers goods or services on credit, they expect to receive money from the customers upon the due date. Yet so much goes into running a business that the owner may end up forgetting about the money owed. Keeping a well-updated record for account receivables will help a businessperson follow up on all debtors.
To ensure timely payments, the business owner should consider automating sending invoice reminders and follow-up messages or emails to their customers. Invoice discounting also provides companies with cash flow by allowing business owners to access an equal amount of money as owed by creditors in invoices from a finder.
Taking inventory and collecting payments from debtors provides a business with enough cash flow to keep the business afloat. Timely payment of outstanding loans creates a good rapport with vendors and lenders, both of whom are vital to a business’s success. A business owner should also negotiate with creditors for friendly loan repayment plans.