Photo by Tima Miroshnichenko

If you are thinking about bankruptcy, maybe you have lost hope. Perhaps you cannot see another way out. But do not give up—you have got options.

By most measures, the economy is strong. The stock market is roaring, and unemployment is low. Gross domestic product is rising. Under these circumstances, bankruptcy is on some people’s watch.

Corporate bankruptcy tends to be cyclical. Bankruptcy filings veer up and down along with the path of the macroeconomy. The last significant surge in corporate bankruptcy filings came in the “Great Recession.”

But while trends in bankruptcy are macro, if you run a struggling business, it does not matter what is happening in the broader economy—you are feeling the pain in a very micro sense. It would help if you acted quickly and strategically to avoid bankruptcy.

This article addresses some things businesses must know about bankruptcy and stay out of it. 

What Ushers to Bankruptcy?

Three of the biggest (and most common) mistakes that can lead to bankruptcy include:

1. Over-Extension. Growth requires investment. However, many companies (even otherwise healthy) are on the edge of insolvency because they take on too much debt. If they cannot refinance or service the debt, they default and are loaded with few options other than trying to reorganize by filing Chapter 11 bankruptcy. 

2. Lack of Bookkeeping/Recordkeeping. A company with sloppy bookkeeping is typically surprised that its performance is not what it expected—revenue is lower, and expenses are higher than expected. And commonly, it is often too late to fix the issue when the problem is diagnosed.

3. Over-Optimism. Companies invest in new projects and new people when things are seemingly good. Their costs increase in anticipation of new revenue. However, if work they expected gets delayed or canceled, they are left scrambling—or worse, in bankruptcy.

Restore your business’s financial independence with our experienced team of bankruptcy attorneys at The Law Offices Of Ronald E. Stadtmueller. We have filed thousands of bankruptcy cases. Our sole mission is to help people facing tough financial times—overwhelming credit card debts, foreclosures, repossessions, garnishments, bank levies, evictions, lawsuits, taxes, and harassing phone calls.

We have helped thousands of clients by immediately stopping creditor harassment, lost wages, and lost property. We offer clients a fresh start so they can begin rebuilding their credit. And if bankruptcy is not suitable for you, San Diego’s Law Firm Bankruptcy experts will show you other effective options to help you save your business, home, or property.

With offices in Rancho Bernardo, Mission Valley, San Marcos, or La Jolla, our legal experts will meet with you and give you a free analysis of your legal options. Contact us and get out of debt now!

How to Avoid Bankruptcy?

Avoiding bankruptcy requires rigor, discipline, and smarts. In short, it requires good fundamental business practices. Below are some of the things businesses should do to navigate out of bankruptcy:

1. Be Conservative. Do not assume every customer is going to pay and stay. Do not budget for a best-case scenario but rather for a reasonable-case scenario. While some entrepreneurs take a risk, it is always done and calculated in a way that guards against the downside. 

2. Have a Written Business Plan. Having a plan allows everyone in a company to understand the bigger picture and direct their ways toward achieving business objectives. The nonexistence of a plan derails businesses.  

3. Prioritize Debt Repayment. Businesses get into trouble when they over-extend. The best way to avoid overextending is not to borrow in the first place. The following best way is to ensure that you are prioritizing debt repayment. When evaluating your debt repayment strategy, prioritize secured and high-interest debt first. If you can, avoid unsecured debt (such as credit card debt) altogether. Negotiate for the best terms in any loan or financing arrangement, and ensure to get it in writing.

4. Eliminate Unnecessary Expenses. Every month, check your bank and credit card statements. Are you incurring unnecessary expenditures? Are there recurring charges, such as for software you never use, that you can eliminate?

In Closure Running a successful business requires constant vigilance. Take stock of your situation frequently, have frank conversations with your team about your expectations regarding your goals, and make hard decisions, such as making a management change. Take time off to clear your head and replenish your energy. Stay abreast of the latest developments and best practices in your industry. Develop relationships with experienced advisors, such as lawyers, accountants, and bankers, who can guide you through tough decisions and strategic initiatives. Do these things, and you will be better positioned to avoid bankruptcy and set yourself up for success.

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