Tips to Avoid Bankruptcy in Your Small Business

Veronica Baxter

Keep your small business afloat with these quick and easy tips to avoid bankruptcy

Small and large businesses are equally likely to go bankrupt. There are a number of reasons that a business may file for bankruptcy including a poor market, poor spending, a lawsuit, or the most common, the inability to pay back debts.

 A business should only file for bankruptcy as a last resort because usually a business will be forced to close down upon filing for bankruptcy. David Offen, a bankruptcy lawyer in Philadelphia added, “it’s crucial for businesses to be proactive when it comes to bankruptcy. If a business isn’t watching finances, debts can add up quickly and can force a business owner to claim bankruptcy.”

If you are a small business owner, there are some precautions that you can take in order to avoid bankruptcy. Here are some helpful tips that can help your small business stay afloat and won’t let debt sneak up on you:

Prioritize Debt Repayments

Most small businesses borrow money or take out loans when they are first starting up; this action is common and can be extremely beneficial to businesses. However, it’s important that all loans are tracked so that you can properly prioritize debt repayments. 

Secured and Unsecured Debt

There are two kinds of debt, secured and unsecured. Secured debt deals with debt that is backed by collateral; meaning, assets of the businesses or of the business owner will be forms of payment if the business owner does not monetarily pay back the creditor. Unsecured debt, on the other hand, has no collateral backing; there is simply just a written promise that there will be a repayment. 

To best prioritize debt, payback secured debts first, especially the ones with the highest interest rates. When paying back unsecured debts, make small payments to all in order to treat them equally and not let the debt build-up. Prioritizing debts will ensure that no borrowed money builds up over time making it impossible to pay back. Additionally, it will ensure that you are not at risk of losing any of your assets because secured debt will be paid off first.

Pay Attention to Spending

This is a seemingly obvious way to avoid bankruptcy but many small businesses lose track of where they are spending money, especially if it isn’t all written down. Two main points that will aid in spending include, making sure not to spend excessive amounts of money and selling assets that you don’t need anymore for extra income. 

Don’t spend excessively

Small businesses can spend excessive amounts of money without realizing. This could be from buying excessive amounts of products or materials, company luncheons, or even buying software subscriptions that aren’t’ used. With every purchase, make sure it is a necessity for the company and will benefit the company in some way. This will allow you to not spend unnecessary money and that money can be used to repay debts. This will also prevent any future debts that may lead to bankruptcy. 

Sell assets you don’t need

This is a simple way to begin paying back debts in order to avoid bankruptcy. Selling assets that are no longer valuable to your business can provide extra income that could be used to repay creditors. Assets could be anything from office printers to furniture, to a warehouse or work van. Your business will benefit from extra money. 

Keep Track of All Documents

Bookkeeping and tracking all documents is extremely important in avoiding bankruptcy. Tracking documents means keeping written documents of anything from employee records, to any kind of spending, to potential costs of a company. This will allow a business to not overlook any money that it may owe a creditor, while also prioritizing any debts. This will also allow businesses to be more organized in order to prevent any future issues and to avoid bankruptcy. 

Make Sure to Have a Written Business Plan

Business plans are crucial for small businesses. Business plans should be written out in order for the owner to refer back to it frequently and to make changes as needed.  A business plan should describe tactics and business strategies that detail budgets, sales, objectives, and cash flow. A written business plan will allow the business owner to adhere to plans; thus preventing bankruptcy. A non-existent plan, or a plan that solely only exists in the business owner’s mind, will create more opportunity to abandon that plan and ignore initial financial agreements or budgets. 

Salvaging a Successful Small Business From Bankruptcy

In order to best protect your business from bankruptcy, make sure to do all that you can to prevent debt from building up and causing your business to go under. Reducing debt and making it a point to manage finances in an appropriate way is crucial to salvaging your small business. Keep these tips in mind as you manage your small business or as you open a new one, bankruptcy is incredibly preventable. 

Share This Article

Go Up
fractional cfothe concept of outsourcing

Products Audit

Decide whether your products are true to your company’s mission …

The Top 10 KPI's Magazine

The Real Secret Weapon to Growth, Scale, and Profitability of your Digital Business

Outsmart Business

There are many reasons why organizations, especially small…

Benchmarking for Success

How to Use Industry and Competitor Key Performance Indicators (KPIs)



Beyond Your Shadow

Discover the 4P’s that will help you grow Beyond Your Shadow.

Keep Pulse

Why the company pulse is so important and how you can check yours!

Internal Controls

Reduce your risk of fraud by taking these steps …

Five and a Half

Creating a budget is one of the most common unfilled goals of small business…

What Accountants

E-commerce has many advantages for businesses and accountants to grow …

Driving Business

Dashboard reports are a series of charts that track results for key…

The COGS Report

This will show you how to measure the actual profit on products and services…

Cash Flow Best

The 5 Rules of Cash Flow ‘Best Practices’ for Small Businesses…

Services Audit

Describe what you offer as a service and identify whether it is aligned …

Customer Avatar

Decide whether your products are true to your company’s mission …

The Labor Indicators

This report focuses on specific Key Performance Indicators (KPIs) every service …



DIY Metrics

Every business has a series of key performance indicators (KPIs). Unlike metrics, …

Sample Metrics

This report focuses on specific Key Performance Indicators (KPIs) every service …

Recovering Your Business After the Pandemic

How Better Data Improves Your Decision Making for Your eCommerce or Digital Business