If you have your own business, chances are you have a lot of dreams and aspirations you want to achieve within your industry. You might want to set an industry standard, or be an industry leader in your own niche. This takes ambition, time, and a lot of effort on your part. Unfortunately, you might be focusing on pushing your business so much that you aren’t noticing these key signs your business might be heading for bankruptcy. It might be important to take a step back, take a deep breath, and assess these things.
The State of Bankruptcy Around the World
Statistics from Dun & Bradstreet indicate that despite the rather stale growth of the world economy today, global corporate bankruptcy rates have experienced a degree of decline. According to their 2017 report, of the 38 countries explored in their analysis, 26 experienced lower bankruptcy rates than the previous year. Both developing and developed countries in both Asia and Europe have experienced decreases in bankruptcy rates.
This good news, though, is in no way an indication that you as a business owner should slack off in terms of running your business. Identifying these key signs that your business might be heading toward bankruptcy is important:
- How are your balance sheets? Be careful with how much cash you use whenever you have to spend money for the company. If your company keeps losing money every time you update your records, you may want to do an assessment. How are your cash holdings now compared to what they were last year? Decide if you need to take on more debt or issue stock to get yourself out of a tricky situation. If losses pile up, it might spell trouble in the future.
- How are you paying your debt? Are you going to be able to do repayments with interests if there’s a chance of your company losing money periodically? The ideal plan is to at least have some sort of cushion that allows you to possess more than enough money to make sure your company stays afloat. Try not to make it so your company is just barely paying its bills.
- How are your dividends? If there comes a point that you have to eliminate or reduce dividend payments to shareholders on a regular basis, then that might be a red flag regarding bankruptcy. While reducing dividends to shareholders isn’t exactly a bad sign in and of itself, but it’s still something that isn’t advised be done on a regular basis.
- How are your properties, equipment and products? Companies that go through rough times have to sell valuable investments to get back a bit of money that can help them stay afloat. However, if you have to consider selling a lot of valuable assets to gain money, then those might be red flags all on their own. If a company sells a flagship product or a piece of sophisticated equipment to gain money, that might spell trouble.
Be Aware of a Slide Toward Bankruptcy
When it comes to your business, it’s important to acknowledge the existence of bankruptcy as a real problem before tackling it. While the goal is to avoid bankruptcy in the first place, it’s a healthy practice to constantly reassess where you are in relation to bankruptcy in order to make plans to avoid it. The above key signs your business might be heading toward bankruptcy will hopefully be of use in this regard. If you’re in need of more legal advice on your business, click here.