Bankruptcy, depending upon the situation of the company and the state you belong to can also be termed as liquidation. Now, before diving into the ways to avoid one such financial situation, we need to understand what bankruptcy is. In layman’s terms, bankruptcy can be defined as a lack of funding. A situation where the revenue generated by your company or institution is not enough to deal with the incurred debts. They will think of a way to redirect or write off the same through bankruptcy and get a fresh start. For limited companies, this also means a CVL (Creditors’ Voluntary Liquidation). This will compel the company to cease every bit of its trading. Liquidation also means that the remaining proceeds are to be distributed among the creditors and the debts that remain are then written off. Bankruptcy allows the company to Press The Restart Button.
How to avoid such a financial situation?
As mentioned above, bankruptcy is a complicated situation to be in. Thus, avoiding one should be your priority:
- Not proper repayments of debt cause bankruptcy. Thus, taking account of every penny the company owes to individuals and making repayments just at the right time will safeguard your institution from bankruptcy or liquidation.
- Cutting corners to meet the newly decided budget should also be your priority. This will make your company sustain for a bit longer period. Organising events that cost the company a decent amount of fortune should be removed from the books. These budget fixtures should continue until the debts get paid and the company revenue system is back on track.
- Creditors you owe money to might be willing to play along more than you expect. Explain to them the situation of the company, and try to renegotiate payment promises. This will provide you with flexibility and ease of payment.
- Assets that possess a lot of value, but do not contribute to your business can be sold to liquidate their monetary benefit. In other words, any valuable asset that comes under the column of non-essential business expenses should be sold.
From creating new business plans to working on the generation of maximum revenue, everything should be done to avoid bankruptcy. Such a situation can break you mentally, but tackling one such financial crisis will lend you years of experience as well as future funding.