What steps do you take in avoiding bankruptcy? and how do you protect yourself and your startup from going bankrupt? This is a question entrepreneurs have to ask themselves, as the startup industry is unpredictable and hazardous.
Some startups fail, and it is not always the founder’s fault. I will tell you about a lesson I learned the hard way: generating cash for my business as a startup. You may wish to read the 9 strategies to help you stay out of debt for good.
Avoiding Bankruptcy and Generating Cash for my Business
As a startup or an entrepreneur, you have to be flexible and ever willing to eek for ways to avoid bankruptcy. Seek ways to generate cash for your business in times of difficulty or you are going to go bankrupt before you succeed. In the event of bankruptcy, you can generate funds by:
- Chasing debtors to pay up
- Keeping your bill payment low
- Selling the company’s assets
- Going to the bank for a loan
- Going to the shareholders
1. Chasing Debtors to Pay up
Starting a business is risky, but bankruptcy due to giving away your product for free is downright stupid. Therefore, one way to avoid bankruptcy is by looking for your debtors to pay up their outstanding invoices.
Why you have such debt is that you do not have strong negotiations with your customers on credit terms. Set the credit limit for customers to avoid the debts being too much.
Learn the business pitfalls you should know as a startup
2. Keep your Bills Payment Low
Have you ever had to make payroll on a #700,000 budget? You can’t imagine how much you would pay to go back and invest that money elsewhere, so you don’t. This is bad financial advice, but the basics still hold true: You will avoid bankruptcy if you spend little to nothing on your business for the first few months.
Another way you can go about your business is avoiding bankruptcy is by getting your suppliers to fund your business to a greater or lesser limit as this will reduce cash outflow. Good business practice as a startup will always be to negotiate extended credit terms with your customers.
3. Selling The Company’s Asset
Founders often face a challenging problem: maintaining their company’s cash flow without declaring bankruptcy. After all, cash is the lifeblood of any startup, and it has to last until profitability.
So how do you ensure yours doesn’t run dry too quickly? One way is selling the company’s assets. We know it is not right to sell an asset that will be useful to the company in the future, but you can do away with reductant assets and recover some cash.
Read the 5 Sources of Business Grants in Nigeria for Startups
4. Going To The Bank
Going to the bank for a loan to find your business isn’t bad. Banks are always glad to offer loans to startups and other businesses. You can secure the loan with your business. Learn about the 9 legit small business loans in Nigeria.
But if you have already gone bankrupt, you can secure the loan with collateral. You even secure the loan with your debtors, so that in the event you do not pay up the loan, they will hold your debtors responsible.
Learn about the world bank grants for small businesses in Nigeria.
5. Going To The Shareholders
Nearly every startup company that I talk to these days is afraid of running out of cash. You regain money by running to the shareholders for funds. But you have to give a good reason you are asking for the funds.
Getting these funds in a small organization can be easy, but in a large firm, it’s difficult to approach shareholders. Concrete reason and good tactics would be the best way to get this money from them.
Know about Ponzi Scheme: How they hook startups and why you should be careful.
5 Reasons to Avoid Bankruptcy as a Startup
Why is avoiding bankruptcy important? When you don’t avoid it, the following will happen:
- It would impact your business and make an abrupt stop of your business
- It will impact your capacity to earn income
- Bankruptcy will restrict your business life
- Bankruptcy can lead to a long-lasting outrage
- It could affect your employment as a startup or a business owner
- Bankruptcy will make you lose your job and income at the same time.
Conclusion
As a new company, you want to do everything right. You want to make sure you choose a product people will like, make sure it has decent margins, and that there is plenty of room for growth. Not only that, you want to be profitable. You can try getting more business to invest in your business, but it’s not a guarantee to come out of debt. More income and money need to be generated to keep the business going or else it will become a drain on the company.
Therefore, the whole point of being an entrepreneur is to live on the edge, surrounded by infinite opportunities and prosperity. But, as soon as it looks like a successful business venture, the fear of going under sets in. To stop this cycle, you need to know what are the best practices for cash management and how not to burn through your funding too quickly.
