4 steps to protect your business from bankruptcy

The basics of staying in the black and avoiding bankruptcy.

A business person’s biggest fear when starting a business is bankruptcy. It is understandable considering how much blood, sweat, and tears is put into a business compounded by the financial investment. Avoiding bankruptcy should be at the top of your priorities as a business person seeing as the effects are devastating to both you and the business.

The legal know-how is not available to everyone on how to avoid bankruptcy. Nevertheless, this article will give you the basic knowledge on how to avoid this problem.

Experienced management

While the statement may sound obvious, you would be surprised by the number of entrepreneurs who decide they can do everything. An attitude like this will leave your business struggling before it is on its feet already. It is also common to find business owners hiring relatives or friends so that they do not have to pay a lot of money. Shooting yourself in the foot could not be better described, since the friends or relatives will not put in the required amount of effort into the business as someone employed. The friends and relatives will feel like they are doing you a favour and so a keen eye will not be put into the operations of the business. In the not too distant future, you may find yourself staring at a mountain of debt not knowing how you acquired it or how to pay it.

Separate accounts

If you started counting the number of businesses that go under due to failure in separating business accounts and owner accounts you would lose count. Moral of the story is that it is completely detrimental to have your company account the same as your personal accountant. Apart from the obvious risk of spending money that is not yours, it is an accounting nightmare when you start doing the company’s books. It is also quite unethical to have them together and most authorities require separate bank accounts for the proprietor and the company itself.


During the infant stages of the company, withdrawals of the company’s profits should be kept to a minimal. While it is important to have a stipend to sustain yourself before you hit the big leagues, it is important it should be kept to a reasonable amount. It is not uncommon among entrepreneurs to take out a huge amount of the profits as profit. However, you should refrain from this since you may end up taking more and more from the company hindering growth while drowning the company in debt. Bankruptcy will be knocking at your door before you know it with this kind of behaviour.

Debtors and creditors

If you are planning to start a business where goods will be given to buyers on a credit basis, a plan of recovery should be on hand. It is a common story in the business world of businesses that go under simply because they could not recover their money from debtors. Once this happens you are forced to borrow so as to plug the gaping hole. You should ensure that proper rules are in place to ensure you can recover your money in case of defaulters. Creditors are also a common theme in this story; you should ensure all your debts are paid on time and renegotiations done in the event payments can’t be done on time.


These steps will help you get your business to the next level. Adherence to them will have you smiling all the way to the bank in the not too distant future.

See also: The importance of credit control