Just recently, Suntech Power, the global leader in solar panels manufacturing, became one of the latest companies to succumb to bankruptcy. Whether you are running a small mom-and-pop-shop or a giant multinational conglomerate, bankruptcy is an ever-present possibility.

The Roadside Beauty Salon
Trey Ratcliff via Compfight

Further, its adverse effects are so real that business owners must never take their eyes off the financial health of their companies.

How to Prevent Bankruptcy?

Early detection is still the best weapon against bankruptcy. By identifying the symptoms and causes early on, company managers are able to address potential problems more effectively and efficiently.

However, the real problem is not about finding solutions to problems. Business managers are good with that given enough time. It is being able to find out and acknowledge that you have a looming bankruptcy problem before things spiral out of control is the hard part.

The Symptoms

The signs that you have a looming corporate bankruptcy problem would greatly depend on your industry, company size, market share, etc.  The following are just a few of these indicators. Nevertheless, these examples should give you some good insights on what you should look for.

Plateauing sales figure

Every entrepreneur knows product cycle, but it seems that many fail to realize that when a product has reached the so-called maturity phase, decline comes next. This is when complacency becomes very dangerous. Things can only go well for so long. Sooner or later, a new product is born and before you realize it, you’re out of the picture. Instead of allowing product cycle to work against you, use it. By knowing that your product is nearing maturity, start developing a new one already.

Also, don’t fall into the trap of trying to defeat your major competitor on an aging product. Fujifilm did not focus its resources trying to beat Kodak on the camera film business. Instead, it wisely invested more of its resources on the upcoming trend of digital photography.

Increasing marketing expenses to keep sales up

There’s nothing wrong spending on marketing. It’s part of a healthy and growing business enterprise. However, a good entrepreneur knows that wrappings don’t make a product. When you realize the increases in your marketing budget are no longer as effective as they used to be in bringing in more sales, it might already be time to start looking into other options.  Don’t wait for such a time that you are forced to borrow substantially to fund your marketing campaigns before you act. It’s almost the perfect formula towards business failure.

Increased debt repayments to sales ratio

This is something that can easily be checked, but many entrepreneurs seem to shrug this indicator off only to regret it later. Keep debt repayments small by borrowing less while keeping sales up.

If you don’t have the habit of checking your debt repayments to sales ratio, it might be high time to start now. Knowing that you have this issue can be enough motivation to dig deeper in finding areas that need attention without having to resort to borrowing.

Smaller competitors start to capture your market

Being the bigger guy on the block almost always means more guys wanting to take you down. So keep your eyes for upcoming players and deal with them before they become strong enough to challenge you.

In April 2012, Facebook bought Instagram for a staggering $1 Billion and everybody seems to agree that above all else, Mark Zuckerberg’s main agenda is to buy off a competitor than to expand their business. Of course, you don’t necessarily have to buy off everyone. Check out all your options, but make sure to act swiftly.

Large players come to town

Let’s face it. When it comes to direct competition, large companies almost always have the upper hand. Everyone knows that Walmart kills local small businesses.

When facing a larger opponent, don’t wait up until your company is already neck-deep in debt to start considering other options; it might already be too late. What many small businesses don’t realize is that these changes also bring new opportunities.  Look for these emerging opportunities and see if you can rearrange your business to accommodate these changes. Of course, there’s a strong possibility that your only option is to check out. What is important is that you know your options and you are able to act on time.

When Carrying a Huge Business Debt

Even with all the data available to them, many entrepreneurs still come short in detecting potential problems early. They would soon panic and borrow heavily to keep their businesses afloat. Even when your debt levels are still on manageable levels, it might be helpful that you already know what your options are should things turn worse.

If you haven’t considered using business debt relief services yet, you should see if it is an option you can use on your business. Being able to significantly reduce your corporate debt will give you that elbow room you need to develop a new product, offer a new service, train new staff, etc.

Bankruptcy is avoidable if you know how to detect it before it even becomes all too visible. Sharpen your senses to see if things aren’t growing well. Use the best possible tools e.g. product development, business debt relief, or focusing on specialized services, to deal with it early on and save yourself from the troubles brought about by corporate bankruptcy.

Cristopher Laguna is a financial writer for Commercial Debt Counseling. It is a company that provides free business debt relief consultation to entrepreneurs wishing to learn all options available in dealing with corporate debts.


Digiprove sealCopyright secured by Digiprove © 2013 Mitch Mitchell