Bankruptcy - How To Avoid Going Bust
Lots of business blogs give tips on How To Succeed In Business. As you'd expect. We all want to Succeed In Business. It's logical, it's part of our culture and it's a genre in Hollywood movies; a young man succeeds against all the odds with a dream, a clever idea and buckets of gumption.
What you don't see are films like 'My Glorious Failure: How I Turned A Million Quid Into A Huge Loss'.
You know what? Businesses fail all the time. It's natural. Sometimes it's bad luck. More usually the core idea is off. Often it's bad management; a man is good at X but his business also requires Y and Z.
Here are a few ideas to help you avoid setting up to fail.
1. Keep Up With Trends In Your Niche And The Wider Economy
The market will change. Unless you're selling gold bars at a discount, people will shop elsewhere to get what they want faster, cheaper or better. Don't assume that what's been selling well, for five years, will do so in year six.
2. Watch Your Competition
Small startups can move faster than established businesses. The internet means people can compare prices before they contact you. You can't manage how you're perceived; consumers compare notes. So, compete on quality, not price; there'll always be some idiot who'll burn money to undercut you. Sell on quality, watch your overheads and outlast him.
3. Watch Your Finances
It's seen as normal to run a business, for years, at a loss, or just break even. Banks are keeping lots of zombie businesses going. What a world!
Well, that's fine, until you get whammed with a bill which means you can't make the next monthly loan payment. Or the next. Or the next.
Then you start getting increasingly stern letters. And phone calls. People want their money back. Who knew?
Most successful businesses run at a net profit. Duh!
So treat debt as being held hostage and paying it down as gaining your freedom.
How-ev-errrr: Some serial entrepreneurs treat banks and investors as mere donors. They hop from bankruptcy to bankruptcy. They're half-way to being conmen and our society's laws let them. That's ok, I guess; they're playing strictly by the legalities of the game. Many people and institutions have tons of cash they have to put somewhere; cue the appearance of Mr Suave to help them!
It takes a certain type of person to play in this league and the average small businessman isn't up to it. He just ends up in court and his missus is thinking about divorce while he's there.
4. Start Saving
Year 3 and your hard work is paying off? Start salting away money in a high interest account. Your savings will help you over that bad Christmas period when everything just seems to go wrong.
£500k and the cash is still rolling in? Start thinking about what you can buy that will appreciate in value; property, stocks, gold, vintage sneakers!
5a. Talk To Creditors
You didn't heed me and now the wolves are at the gate. Negotiate with your creditors. Give it to them straight. They may take a hit rather than lose the lot if you go bust.
5b. Don't Ignore Statutory Demands
If you're getting stern legal letters don't ignore them. A creditor may be angry enough to force you into bankruptcy. My perception is that UK companies are not as genial as they once were and will fire off increasingly serious letters, automatically; nothing personal, just business.
A statutory demand will state that if you don't don't repay the debt in full or come to some other arrangement within 21 days of the demand being served, your creditor will apply to make you bankrupt, unless the demand is cancelled or set aside.
In reality, you don't ever want to get to that stage, but it's good to know what to do if it happens. Writs are not the end of the world!
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