Last year, 2,270 active companies went bankrupt, according to Statistics Denmark. A statistic few business owners and entrepreneurs want to be a part of.
When your business is declared bankrupt, it means that your business is insolvent. This means that the company is unable to pay its bills and that this is not just a temporary problem. If your business is insolvent, you can file a bankruptcy petition for your business yourself, and one or more of your creditors can also file a bankruptcy petition against your business.
While filing for bankruptcy may seem like an "easy" way out of the financial squeeze of accumulated debt, any serious entrepreneur should do everything possible to avoid this. A bankruptcy in the CVR register will greatly impair your creditworthiness and make it difficult for you to continue life as an entrepreneur and business owner.
Below you can read our top five tips on how to avoid bankruptcy
1. realistic budget management
To start, business owners should spend time and effort planning a realistic budget. The budget is the most important financial management tool for business management - it's how you as a business owner get and maintain an overview of expected income and expenses. Make sure you continuously follow up on whether the budget is correct. This way, you can prepare for downturns and deal with problems in advance if necessary.
2. Keep track of your debtors
As a small business owner, a well-functioning bookkeeping system can make a big difference in avoiding bankruptcy. As a small business owner, bookkeeping and invoicing can easily slip through the cracks because you're busy and have few hands to help. Nevertheless, invoicing and collecting from customers can be crucial to the liquidity of your business. Therefore, keep a tight control on your debtors and constantly follow up on their ability to pay.
Send an invoice immediately after the work is done - or better yet, ask for a partial payment before you start the work.
3. Engage with your creditors
If you're already in a situation where you can't meet payment deadlines with your creditors, whether they are banks or suppliers, contact them immediately. The worst thing you can do is cower in silence. Call them and explain your situation as it is - that you can't pay right now. Most creditors want their money back, and sending your case to debt collection is not necessarily a good option for them. Therefore, the vast majority of them will also have an incentive to enter into an installment agreement with you or a longer payment term.
4. Sell the inventory or assets
A common mistake businesses often make is building up a large inventory that never gets sold, and in some cases even believing that expanding inventory may be the way forward if sales are slow for a period of time. But this can only exacerbate the problem as you generate additional expenses before you generate additional revenue. Instead, try the opposite approach - make an extra effort to sell the inventory you already have.
5. Get free and impartial advice: Contact Early Warning
Early Warning is a nationwide initiative - a kind of lifeline for Danish companies in financial crisis. Early Warning has experienced consultants employed by the regional growth centers who provide sparring, advice and guidance, and the service is impartial and free of charge.
Get in touch with Early Warning consultants here