When Your Startup Is Facing Bankruptcy |
Posted: August 6, 2018 |
All of the exhilaration and startup motivation in the world doesn't come in handy when your startup is facing bankruptcy. Some people find themselves spinning their wheels for weeks or months before they accept the reality of the situation. The truth is that no matter what you decide when your startup is facing bankruptcy, the power is in your hands early on. The longer you wait to take action or engage the advice of professionals, the higher your chances of having limited options down the road. Bankruptcy is Not the Only OptionYou don't need to file for bankruptcy just because your startup is facing financial hardships, but you do need to take action in order to understand your rights and responsibilities. If your startup is about to fail, there's no doubt that you'll have emotions attached to this situation. After all, this is the business you built from the ground up. The first thing you need to do is recognize when your startup is facing bankruptcy and what this means. In general, you may have less than 12 months of capital left. With economic turmoil and many different startups beginning their company and ending it within couple of years, it's important to understand what this means and the options available to you. Your momentum may begin to dwindle as soon as you realize that you are facing financial problems, but this is actually the worst possible time to take no action at all. In fact, you need support as soon as possible after you identify that you have less than 12 months of capital left, or when your debts are mounting at a rate you can’t keep up with. Understand the Real ConsequencesYou will be faced with the primary decision of trying to make a go of it, or filing for bankruptcy. It goes without saying that the stakes here are high, and you will have to learn to live with being uncomfortable if you intend to try to make things work. What is meant by this is that you may have to handle difficult decisions, like laying off some of your staff, being yelled at and threatened by debtors, all while trying to negotiate new contracts like your equipment leases, phone system and your rent, while potentially having investors yell at you and possibly even facing lawsuits. This does not mean that every single startup in this situation is going to face these challenges, but if you are going to attempt to get your feet back under you without filing for bankruptcy for your startup, you will need to get comfortable with the prospect of dealing with a number of different awkward and difficult situations. You may need to batten down the hatches and work more hours than ever before, which is really saying something to people who work in a startup and are probably already putting in 60 to 80 hours a week. If outside investors and the public catches wind that you are facing financial problems, it may be more difficult to secure new business opportunities than ever before. Likewise, you'll be trying to grapple with dealing with existing financial situations, too. Take Immediate Financial StepsFigure out how much cash is being spent each month and divide that by how much cash you have in the bank. Your accountant can complete this for you or you can look at your bank statement, and profit and loss statements. This will tell you how many months you have left. The initial steps you need to take in determining whether or not you're going to file for bankruptcy or not, is to do the hard work of trying to extend this by at least 25%. This might mean renegotiating with a landlord, cutting all recurring bills and eliminating staff. From this point forward, after you have cut every possible expense, it's time to think about improving revenue, if possible. If you can cut expenses tremendously and double your existing revenue streams, your chances of figuring out your primary business and getting your financial footing under you will go up tremendously. Furthermore, this is not an exercise you can only complete once if your startup is facing bankruptcy. Instead, look at this as an opportunity to improve your financial game overall. You will need to implement a monthly profit and loss review with the management team. This will mean evaluating every recurring cost you have and looking for ways to cut it. No single solution will be the only thing that can help save your company or give you insight about whether it’s time to call it quits. Cutting Costs and Boosting Revenue Could Salvage Your StartupMany companies that are focused primarily on growth fail to take into consideration the benefits of not only increasing revenue, but also cutting costs. This allows companies to spend through money much faster than they needed, and a monthly profit and loss review and an elimination of expenses can extend your business significantly, and give you the financial support to go to the next level when it's time. There are times to hit the gas in business and times to conserve your fuel. When you are in a fuel conservation stage, anything and everything that can be eliminated should be eliminated as soon as possible. If you are thinking about filing for business bankruptcy, you need to understand what this means for you, as well as for your creditors. There are particular actions that need to be taken as it relates to business bankruptcy and you need to dispel many of the most common myths associated with this situation before you decide to move forward. It can be emotionally difficult to let go of a company you have poured your blood, sweat, and tears into. A sit-down review of the finances and your prospects may reveal other options available to you, especially if you can continue to cut expenses and allow the business to regain its footing in the months following.
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