Bankruptcy is something that most people try to avoid, especially businesses.
Not only does it adversely affect the creditworthiness amongst financial institutions, it also affects its future business as well.
It is perhaps for this reason that bankruptcy is one of the most dreaded terms in business.
However, unlike most big enterprises, which have a back up of huge capital, it is the small business that usually fails to avoid bankruptcy.
However, this could very well be avoided.
The following are a few steps, which may prove to be quite useful in avoiding bankruptcy: Lack of proper financial planning is one of the primary reasons behind the failure of these small enterprises.
Therefore in order to avoid bankruptcy, an enterprise should always have a proper business plan, keeping in view the requirements, which may arise in the future.
One must always consider the contingencies, which the business may be faced with.
Bank loans are one of the most common sources of finance for a small enterprise.
However, when applying for a loan, make sure that you do not apply for a loan much higher than what you actually require.
Always remember that the higher the loan, the higher the amount of interest.
Therefore it would be better to keep the debts as low as possible.
Of course you should consider the contingencies.
But luxuries should be kept at bay.
Not only that, making the repayments on time should also be set as priority.
This would help in improving the credit score and availing loans in future.
Keeping the costs low is another aspect, which most small enterprises fail to address.
One must always remember that every penny saved is a penny earned.
So keep a record of every expense, however small it might be.
This would help you in identifying the wasteful expenses, which you may avoid in future.
In fact, miscellaneous expenses often tend to become to large.
Keeping such expenses to the bare minimum could go a long way in keeping the costs low.
Bad debt is another major aspect, which may result in losses for an enterprise.
In order to avoid this, one should have facilities for accepting payments through credit cards.
Not only would this help in avoiding bad debts, it could well be instrumental in bringing more customers.
Maintain separate accounts for your personal and business finance.
Make sure that you do not use the funds of your business for your personal expenses and vise versa.
This is one of the biggest mistakes that many business owners make.
Using the business funds for personal expenses could well lead to lethal consequences and is one of the major causes of bankruptcy in small enterprise.
Avoiding bankruptcy isn't actually as tough as it may appear.
One just needs to think and act rationally.