Small Business Bankruptcy Prevention

Are there strategies for preventing small business bankruptcy? During the first two years of business, around 20% of businesses fail, according to the Bureau of Labor Statistics. Only about half of the businesses that survive the first two years remain open for the next five years. According to the Small Business Administration, it isn't easy for small businesses to survive the first few years of entering the business world. The chances of survival are about the same regardless of industry.

As a business owner in a world where businesses fail regardless of industry, it is important to have strategies for preventing small business bankruptcy. Having some basic strategies that you can use can help improve the likelihood that your business will be among those that succeed.

Be Financially Prepared as a Business Owner

There are many times that businesses fail because business owners do not have a basic understanding of what it will take to operate their business from a financial standpoint. Products and services come with a price. There are products and services that you need to run a successful business. If you do not have a good understanding of what it will cost to operate your business, provide products and services, and pay yourself as well as pay any contractors or employees, you could end up with uncontrolled credit card debt with soaring interest rates.

Many business owners attempt to raise capital while others decide to finance their own startup and continue to bootstrap their operations. While either option is fine, it is important to be financially prepared. At a minimum, you should prepare financial projects for your first 12 months in business. It should list every expense.

Obtain Proper Financing When Necessary

Obtaining proper financing when necessary can help prevent small business bankruptcy. It may seem counterintuitive because you are creating debt. However, obtaining proper financing (when needed, in the right amount, with low interest) prevents your small business from dealing with a cash shortage.

If you rely on the use of operating capital to buy long-term assets such as vehicles, machinery, and IT assets, you could put your small business into a serious financial bind.

Proper and necessary financing depends, of course, on the financial health of your small business. It is important to consider what would happen during the normal course of business as well as if an emergency arose if you were to use operating capital to make a big purchase.

Proper Pricing of Products and Services

To avoid bankruptcy, the proper pricing of products and services is absolutely mandatory. Pricing affects your profitability, and your profitability is one factor in whether your business is able to avoid bankruptcy. Many businesses believe the best strategy is to simply undercut everyone else in their industry. While it is important to consider a competitive pricing strategy, being the least expensive option in your industry isn't necessarily the best marketing strategy. It could make it very difficult to keep the doors open.

If you aren't sure where to start or if you aren't sure whether your prices are properly set, start with research. What are others in your industry charging? Visit the websites of those in your industry. If you are in an industry where professionals don't list their rates, you can use Google to look up the average cost. Consider your costs and your target market.


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Once you've established the prices of your products and services, it is important to pay attention to the trends in the industry as well as the costs of creating and delivering your products and services. It is okay to adjust your prices. In fact, it is often necessary.

Create and Follow a Business Plan

A business plan is not written in stone. It is subject to change. If you plan to look for investors or get a loan for your business, you'll likely be asked for a business plan. A business plan doesn't need to be long or difficult. Yet, while it doesn't have to be complicated or long, it does need to have adequate details. When a business plan doesn't have the proper amount of details, it can be hard for business owners to follow. The internet makes finding examples for any type of business plan easy.

Creating a business plan will help you get all of your thoughts and ideas into a cohesive document. You'll have a better understanding of what you need to do as a business owner to make your business a success and avoid bankruptcy.

As your business changes, you can change your business plan. According to Investopedia, the unwillingness to adapt a business plan to the challenges of a business can create problems for a business that could cause it to fail.

Create and Follow a Marketing Plan

To avoid bankruptcy and improve profits, create and follow a marketing plan. You can have the best products and services in the world, but if no one knows about them, it won't matter that you have them. You must know where to find your target market and get what you're selling in front of them.

It is also important for you to keep your small business marketing plan costs affordable. Social media options such as Facebook, YouTube, Twitter, and Instagram offer free exposure as well as affordable paid opportunities.

When you first start, you may be able to handle your own marketing. There is a lot of great information available online that is free. It will take an investment of your time, and you'll need to be consistent. Remember, though, that potential clients won't know you're out there unless you create and follow a marketing plan.

Questions About Business Bankruptcy?

The Law Offices of B. David Sisson wants all businesses to avoid bankruptcy, but we know it doesn't always work that way. As a bankruptcy attorney, B. David Sisson helps Oklahoma businesses navigate the bankruptcy code. We offer free consultations to business owners. To learn more about preventing small business bankruptcy, bankruptcy alternatives, or to have your questions answered about business bankruptcy, schedule your free consultation now!

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