Monday, April 27, 2020

How to Financially Protect Yourself When Going Out of Business



Going out of business is often the reason that keeps entrepreneurs from starting a business. The fear of failure presents too great a risk, and thus, individuals play the safe card. For the brave and courageous, who have stepped up to the plate and accepted the challenge, there are a few safeguards you can put into place, before the doors close to your business. These measures can protect you financially—even if your business goes under.

Consult Legal Services


Before starting your business explore all options. It’s not a bad idea to speak with an attorney to find out about the risks of each type of business. Will it be a sole proprietorship, a partnership, LLC, or a C or S corporation? Each type of business offers benefits but also has its drawbacks 


 Each is taxed differently and if your business shuts down, your liability is different as well. Play devil’s advocate and consider what would happen if things went South. This can set you up for success or failure, as well as protect you from financial ruin.

Know Your Market


Research the competition! Know the going rates and watch the success, as well as the demise of other businesses. Study their patterns and what has worked and not worked. Of course, this education should happen before you launch; however, it never ends. You should constantly be reading and observing the market around you. 




Know the trends and the forecasts. Watch for patterns throughout the year and how seasons, the economy around the world and local, as well as current events affect said patterns. Keep good records and data, so that you can forecast your own company’s trends.

Adapt


This is potentially the most important part of being a business owner. Yes, your unique product is what makes your business a success. It draws customers’ attention and keeps the doors open; however, there comes a time that things change. Technology quite literally evolves every day. If you do not keep up with the times and refuse to adapt, then, the business world might leave you in the dust. 


Know when it’s time to make those changes. Know when it’s time to upgrade software systems and move forward. Don’t be so married to a product that you hinder your own progress. If customers continue to tell you that they need something more efficient or that a process no longer works, listen and act. The worst thing you can do is ignore their opinion, since they give you a paycheck. 

If your business is not succeeding in the market, pause and reflect. Blockbuster is possibly the biggest example of a business that was killing it, but grossly missed the online market and sunk quite dramatically and absolutely. Kodak, Pets.com, Sears, and Abercrombie & Fitch are among some of the other businesses that refused to adapt and paid the price dearly.

Zero-Sum Budgeting


If your ship is sinking, there is a budgeting practice that can be used both on a personal level, as well as a business level. Zero-sum budgeting is the practice of assigning a job to every dollar. Essentially, you tell your money where to go. 


It requires some homework. ou need to study the spending of previous months and know where your dollars are going. It helps if you are on this path before you get to the point of shut-down; however, it can also be one last hurrah. Zero-sum budgeting encourages you to save one full month of expenses. 

After you’ve tallied everything and know what your expenses are, you save that amount of money, and then, that’s what you pay your bills with for the present month. Essentially, you are always one month ahead. This is a great way to eliminate unnecessary spending and crackdown on bad habits.

Credit Counseling


Before closing your doors, consider consulting a credit counseling business or financial institution. They can help you consolidate some of your debt, as well as find ideas to generate more income before you have to declare bankruptcy or go completely out of business.


Accept Reality


Know when it’s time to shut things down. One of the worst ways that you can inflict more pain and consequences on yourself is to deceive yourself. See the writing on the wall and give yourself a timeline. Know when enough is enough and it’s time to sever ties. Thomas Edison held over 1000 patents. He knew that not all of his ideas would succeed. It’s okay to fail. Sometimes that becomes your richest education and lesson.

Running your own business is challenging, but also rewarding and exciting. Be smart about financially protecting yourself, before you get to the point of going out of business. Start by protecting yourself from the beginning. Choose wisely on the type of business that best fits your business direction, as well as offers protection for the future. Do your homework, be pliable, trim the fat and stick to a solid budgeting system. Most importantly, consult with credit professionals, and ultimately, be real. Know when it’s time to get out. Some of the most successful businesses failed at one point or another. Learn from those lessons and move on. It’s possible to financially protect yourself all steps of the way.


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