Bankruptcy is one of those things that no one thinks will ever happen to them. But bad times don’t come with an announcement. When we start a business, we are ambitious, and we think it will never fail, but one should always hope for the best but prepare for the worst.
And you should also prepare for the worst scenario because multiple things can happen without warning and you can take a heavy hit. With the fluctuations in the economy, anyone can be left in a state where they have to file for bankruptcy. But before you file for bankruptcy, you need to evaluate your business objectively and consider all your available options. Here in this article, I will mention a few signs that are a clear indication that you need to file for bankruptcy.
Your Cash Flow Crisis is there to Stay
A cash flow crisis is an initial indication that your business is drifting towards bankruptcy. Now, if your cash flow crisis is long term, it means that eventually, you will have to file for bankruptcy. However, if you believe that you are just having a bad couple of months or a year, there is still a chance you can get back on track.
The cash flow crisis is normally caused due to late payments from clients or vendors. Getting back on track would not be easy, and you will have to make some serious changes. There is a possibility that you will need to downsize to cut expenses, or you might even have to reduce your salary until the company is back on track. But if you think that it is impossible to repair the damage, then you will have to file for bankruptcy.
Your Personal Assets Are Not Safe
The major reason behind filing bankruptcy is to save your assets, so if you think they are at risk, then it is time. As soon as your financial situation weakens, creditors try their best to get their hands on your assets. If you have already kept your personal assets separate from your business, under a proper business structure, then there is no need to worry. On the other hand, if you did declare your assets and personal savings in your business, then bankruptcy is your last hope to save them. You can get into this situation in the following scenarios:
- When according to your business structure you are personally liable for everything
- When you have mixed-up your personal and business finances.
- When you have given a guarantee in writing.
You Have Maxed Out Credit Cards
If you have been in financial distress for a while now and have maxed out all your business credit cards, it is a clear sign that you are headed towards bankruptcy. You can increase your credit limit, but eventually, a point will come where you will hit the limit and will be left with no options. Also, if you are considering taking a loan to pay out your creditors and other business payments, it is also a sign that you are heading towards bankruptcy.
There Are No Other Options
Another sign that indicates you need to file for bankruptcy is when you see no other options. But, it does not mean that you should immediately file for bankruptcy when you feel you are out of options. Do a thorough research and find out if there is any way through which you can get out of it. You can go to an advisor and he/she can help you to see if there are any options left. You can try negotiating with the creditors, or you can go for debt consolidation, as well. Once you are assured you have no way out, only then should you file for bankruptcy.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.