Considering Bankruptcy? Read This First.
Why this is the last resort for small business owners.
Being a small business owner is never easy, and the challenges of the COVID-19 pandemic make it even harder. What can entrepreneurs do when it seems like they just can’t bring in the revenue they need? Laura Yamanaka, president and co-founder of teamCFO, and Natalie Torres-Haddad, author of Financially Savvy in 20 Minutes, joined our COO Gabrielle Raymond McGee for a small business webinar where they answered your most pressing questions, including the one about the “B” word–bankruptcy. See what they have to say about keeping your business afloat through the crisis.
1. Talk to someone first.
It’s completely normal to worry about sustaining your business. But before you panic, speak to an expert. Says Torres-Haddad, “I recommend that if you have a CFP or a CPA, sit down with them and just go through some of your options before it’s too late.” You may be surprised at the ways they can find to help your business stay afloat.
In addition to guiding you through the applicable tax laws, your CPA may also be able to help you find and apply for grants (you can start your search with our list of COVID-19 small business resources). Even if you don’t qualify for certain grants, the conversation you have with your financial expert can be hugely helpful. “It’s [about] taking that reflection and saying, ‘Okay, can I at least walk away with something as opposed to nothing or digging myself deeper?’”
2. See how your business can pivot.
This tactic is especially helpful if your small business is a startup. “Maybe collaborate with someone else or partner with someone else, instead of having to do it all on your own,” Torres-Haddad offers. If your business is a little more established, consider selling some of your assets.
3. Take another look at your business as a whole.
This period of uncertainty is also a great opportunity to reacquaint yourself with every aspect of your business. “I want everybody to take their business financial statements and go over them line by line,” suggests Yamanaka. “Because when you go through that, you’re going to be saying ‘Why am I still paying for water when we’re in COVID and nobody’s in the office?’” You’ll also be able to see who your returning customers are, why they’re returning and if there’s an opportunity to sell more.
4. Renegotiate your debt.
The unprecedented circumstances businesses face due to the pandemic mean more flexibility from vendors and creditors. “We have negotiated for our clients [who] owe $50,000 and [their vendors are] willing to say, ‘Don’t pay us the $50,000, cover your costs’,” Yamanaka explains. “Now they’ve released you from that debt for $15,000 versus $50,000. Maybe you can stay in business if you went to all of your vendors that way and said, ‘I can’t pay you.’ Because vendors don’t want you to go bankrupt.”
Both Torres-Haddad and Yamanaka agree that bankruptcy is a last resort because it has such a lasting impact on credit score, as well as your ability to work with banks and other institutions if you decide to make a new start. That said, there’s no shame in closing a business that isn’t financially viable–in fact, ending things may serve you better in the long run. “I see a lot of people make that mistake, where they hold on too long because it was their first business,” observes Torres-Haddad. But your dream of being your own boss doesn’t have to end with the end of your first, or even your second, business. Says Torres-Haddad, “I’ve known many people for whom the first couple of businesses did not work out and then they built that traction.”
Sign up here to register for our upcoming small business webinars.
Help an entrepreneur by upvoting
What to Read Now
6 min read
Woman-owned B2B Companies You Should Know
A list of women-owned business service companies dedicated to supporting entrepreneurs
5 min read
Small Business Supply Chain Strategies for Uncertain Times
Navigating the effects of COVID-19
59 min watch
Mind-Mapping for Entrepreneurs
An entrepreneur shares her unique mind mapping technique to help small business owners set their quarterly goals
4 min read
How One Entrepreneur Ethically Produces Her Goods
A glassware maven on crafting a transparent supply chain.