How Not To Go Bankrupt When Starting A Business

by Elisa Adams

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Starting your own business could be just the ticket you need to escape financial worry.

But, equally, it could be the beginning of a financial disaster.

Don’t just rush into your new enterprise, throwing caution to the wind.

Think about how not to go bankrupt first – then build your business empire from there. Here’s how.

Make Use Of Financing Loans

Small businesses are often very naive when it comes to their financial forecasts. They add up how much they’re going to spend over the year and how much they expect to get in. And then they compare the two. If the amount they are getting in is going to be more than they spend, the business is viable. Or so they think.

The problem here is a misunderstanding of what cash flow means in practice. While it’s true that they’re in the black at the end of the year, they might not be throughout.

For instance, a client might make a late payment, meaning there’s no money to pay wages. Here’s where negative cash flow rears its ugly head. You have a viable business. But it’s been thrown off course because right now you’ve got more going out than is coming in.

Taking out financing loans to improve cash flow is essential. Without good cash flow, your business will quickly die and wither away. Fortunately, these loans are easy to obtain, provided the fundamentals of your business are sound.

Reduce Your Investment Risk Profile

Most investors understand that their portfolio should be diversified. It’s a way to protect themselves from the vicissitudes of the market. But when it comes to starting a business, most investors throw caution to the wind. Setting up a business is risky, yet they don’t change their portfolio to reflect this. It’s as if the two aren’t related at all.

Prudent investors will account for the new risk running their own business brings. As a result, they’ll shift their portfolio out of risky assets and into low-risk classes, like government bonds.

Get Insured

Insurance is perhaps one of the most important financial innovations in history. Here’s a method by which people can protect themselves from the risks of living, breathing and doing business.

As a business owner, you’ll want to take advantage of the protection insurance brings. There are lots of different types of insurance cover business owners can grab. First off, you’ll want to protect yourself from litigation. That means taking out employers and legal liability insurance.

If you offer any services to people, you’ll also want to take out professional indemnity insurance. This protects you if you give out bad advice that results in people getting hurt or losing money. Finally, you’ll want to take out “key man” insurance. This is used to protect your income should you, or anyone else critical to the business, fall ill.

Accept Defeat

Lastly, don’t get lulled into pursuing an enterprise that just isn’t going to work. Too many entrepreneurs spend years stuck in a quagmire, going round and round in circles, never making a profit. If a business idea doesn’t work there’s a simple solution: move on and try something else.

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