Starting a business is a walk in the park compared to growing the business and keeping that growth steady. Every year thousands of people start businesses and go bankrupt within less than a year. That is mainly because of the unwise and hasty decisions these businesses make.
Three Reasons Why Startups Go Bankrupt
According to Karla Dennis, the CEO of Karla Dennis and Associates Inc., there are three main reasons why businesses, especially startups, go bankrupt:
1. Lack of Capital
Before you think of starting a business, Karla says, make sure you have enough capital on hand not just for running the business in the present but also for maintaining it in the future. If you do not have enough capital, do not start the business. Otherwise, you will get caught up in debt. The next thing you need to make sure of is not to run a business that is saddled with debt linked to your personal social security number.
Do not assume that you can make it through without having thought about it realistically.
She says:
“It’s okay to take a leap of faith, but in business, you may most likely end up in a dungeon!”
2. Not Understanding Costs
Businesses are often so obsessed with revenue generation that they do not give costs thorough attention. Karla says:
“The most important cost that businesses frequently ignore is the cost of operating the business.”
Apart from the general cost of operating a business, business owners also often do not have a proper understanding of the diverse types of costs, such as fixed costs, variable costs, hard costs, and soft costs of running a business.
According to Karla, the lack of understanding costs often puts business owners in a position where they can easily find themselves needing to acquire debt to keep the company’s operations running.
3. Not Having a Sustainable Revenue Model
Every business requires a revenue model to guarantee consistent cash flow over time. A good revenue model, Karla says, keeps the long-term future in mind. So, according to her, if your revenue suddenly spikes, that does not mean you should make long-term commitments based on the spike. You should make long-term commitments only in cases where you have a guarantee that the spike in revenue will repeat in the future and stay steady.
5 Ways to Avoid Bankruptcy
Bankruptcy is scary and one of the most common fears that stop people from investing in a business. However, if you are careful, you can avoid bankruptcy easily. Here are five ways, according to Karla Dennis, in which you can avoid your business from going bankrupt.
1. Always make sure you have enough capital on hand that can run all your day-to-day operations and can support your business in case there is a sudden crisis in the market. In the case of Covid-19, the only businesses that survived were prepared for a sudden crisis.
2. Make sure you properly understand costs before you indulge in business.
3. Create a sustainable revenue model. Structure your business properly. On a financial level, always separate yourself from your business to ensure both your own and your business’s growth.
4. Set up revenue projections and budgets carefully. Make sure you use data analytics that can help you make sound financial decisions, minimizing the risks of careless spending and overspending.
5. Always work with a seasoned accounting advisor who understands the different market conditions that can affect your business.
How can Karla Dennis and Associates Inc. Help You?
Karla Dennis and her firm continually work with clients trying to recover from bankruptcy or those trying to avoid bankruptcy in the first place. Here is how Karla’s firm can help you:
• Keep You Safe Against Business Liabilities
Karla Dennis and Associates Inc. will help ensure that your business model and structure are such that they can keep you safe against business liabilities. Karla’s firm will help you become a formal entity that can provide you with some level of asset protection like an LLC or an S-corporation
• Manage Your Business KPIs
Karla’s firm will look at your business’s Key Performance Indicators (KPIs) to ensure that your company is growing at the right speed. She and her team will course correct the KPIs if there is a problem. Most importantly, Karla and her team will keep the KPIs steadily positive.