How To Avoid Bankruptcy And Build A Strong And Successful Startup

How To Avoid Bankruptcy And Build A Strong And Successful Startup

Avoid bankruptcy

It is always a great and exciting feeling to start your own business, but to avoid bankruptcy; you need to follow fundamental principles. As an entrepreneur or startup founder, you must understand that it is not all about having the needed capital and the team to start your business. You need to have a good plan in place that will help keep your business afloat. Life as an entrepreneur can be tough, there is no doubt about that but you don’t have to put yourself in a very dire situation with lack of adequate planning. Growing and developing a business is not an easy feat. You will have to deal with the growing pains as well as the investment headaches.

Also read: How to identify your business niche in a crowded market

Most times entrepreneurs think that bankruptcy would never happen or affect their business. Well, ask anyone who has experienced that and he will tell you that he never saw it coming too. From the get-go, you must make plans to avoid bankruptcy in your business. The unpredictive nature of the business can throw you from smooth waters to stormy seas in an instant. So, you need to be well guided and prepared to avoid bankruptcy and build a strong and successful startup.

The purpose of this article is to help you to reduce unhealthy debts and avoid bankruptcy as an entrepreneur. It is very essential that you have plans in place to manage even the worst-case scenario in your business. Adequate preparation can be what separates you from someone that just went bankrupt in business. In this article, you will see ways to prevent bankruptcy and build a strong and successful business.

Things That Can Lead To Bankruptcy

Before we go into the different ways to prevent business bankruptcy, let us look into those things that predispose your business to bankruptcy. You need discipline if you are to avoid bankruptcy in your business. To steer clear of bankruptcy, here are the things you must pay attention to in your business.

  • Over-Optimism

When you have an unrealistic plan for your business, it is a recipe for bankruptcy and you must be very careful here. There is a big difference between having faith in your business and having a blind belief that your startup has a great future. During the financial buoyant times, many businesses invest in new projects hoping for great revenue in the future. If this deal goes sideways, then they are left scrambling for safety and in dire cases go bankrupt.

  • Lack Of Good Recordkeeping

Without good and proper bookkeeping, your business will always run into trouble in balancing its expenses and revenues. Businesses without good recordkeeping will always run into trouble that they often find very difficult to fix. By the time you know what is happening, the damage has become too late to fix and then bankruptcy is inevitable. To avoid bankruptcy in your business, have a good hold of your bookkeeping process. Your records will help you keep abreast of the financial situations in your business.

  • Too Much Dept

Business growth requires investments but many companies, even healthy ones have over-extended themselves in this regard. Some businesses take in too much dept all in the name of expanding their operations. When such businesses can service or finance the debt, they have very few options to fall back unto. Many such businesses try to reorganize by filing bankruptcy. If you want your business to steer clear of bankruptcy, then you must avoid unhealthy dept as much as possible.

How You Can Avoid Bankruptcy In Your Business

There are many ways to prevent business bankruptcy and we shall x-ray all of them here. To avoid bankruptcy in your business, you must be willing to do the following at all times.

  • Be very conservative in your business transactions

In business, an assumption can be suicidal if you don’t get it right. You should not assume that every customer is going to stay; neither should you assume that every customer is going to pay. Always have a budget for the most reasonable case scenario and never the best-case scenario. You can be optimistic about the future but don’t be overly so. Many great businesses have filed for bankruptcy simply by being so optimistic and were caught unawares. Although entrepreneurs are great risk-takers, you need to take a well-calculated risk in a way that will protect you and your business against the downside effects.

Also related: How to identify the target market for your product

  • Have a well-detailed business plan

As an entrepreneur or startup founder, you need to have a written business plan in place. Before you start any business, ensure you have a good business plan in place. As businesses grow and expand a written plan that describes strategies and tactics as it concerns sales, operational budget, capital expenses, cash flow, input cost, and performance objectives and goals.

The business plan will allow your team to see the big picture so that they can properly channel their energy to attaining and reaching the goal. Without an existing business plan, it becomes very easy for your business to derail in its goals and objectives. Once your business is derailed, then you are heading for the end which will most probably end in bankruptcy. So, to avoid bankruptcy in your business you need to have a business plan in place.

  • Develop a prioritized debt repayment strategy

We have talked about too much dept as one of the causes of bankruptcy. Now let us discuss the prioritized debt repayment strategy. Although the best to avoid too much debt is not to borrow in the first place, however, business debt is often inevitable. So, to come of debt without hurting your business in the process, you must prioritize debt repayment. When you are evaluating your debt repayment strategy, consider secured (loan secured with a piece of equipment) and high-interest debts first. If it is possible for you to avoid unsecured debt, then stay far away from them. Ensure you have all your loan or financing arrangements in writing.

  • Cut down on all unnecessary expenses

At the end of every month, go through your balance sheets to see those things that are unnecessary expenses. Are there certain expenditures that your business can do without and still be very well in business? Maybe now is the best time to cut down on those expenses. If they don’t add to the revenue of your business, then you need to take a very good look at them very well.


As you have seen in this article, there are different ways to prevent business bankruptcy. To build a strong and successful, you must do everything within your power to avoid bankruptcy.

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