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3 Practical Ways To Protect Yourself If Your Business Fails

Nobody sets up a business with the intent to fail. Unfortunately, business failure has become so rampant that 45% of new startups do not live beyond five years after inception. Indeed, several reasons account for why this happens. This article, however, discusses some crucial steps you can take to protect yourself if the worst happens. Your inability to protect yourself could have dire consequences on your reputation, finances, and prospects of starting another business. 

 

  • Avoid guaranteeing personally for business debt

 

Unfortunately, this is a sad reality some business owners have experienced first-hand. If you go by the business finance books, then guaranteeing personally for a business debt automatically means you are directly responsible for it. Usually, during the loan application stage, banks will request a guarantee. The tricky part is that the creditor or bank may ask for a personal asset as the guarantee. For most business loan applicants, the desire to get the money overrides caution. Some people may even guarantee the family home.

According to experts, this is wrong and a recipe for further financial disaster. For this reason, it is advisable to avoid guaranteeing a business loan with a personal asset. Even when it is an incorporated company, you will be personally liable for any business debt. If you have other viable options, it would be better to use those rather than guarantee a business debt with personal assets.

 

  • Hire experts

 

Regardless of the type of business you run, hiring experts to guide closing down the company with minimal damage is vital. Admittedly, it sounds unproductive to invest in a professional, especially when the business is going under. As ironic as it may sound, this is the right move.

A professional in a situation like this can help you make financially-sound decisions. Moreover, their timely expertise can help save more than you would have without them. For example, their proficiency in how to close a limited company provides enough enlightenment to liquidate the business if need be.

 

  • Bankruptcy

 

Legally, a business cannot be closed down when liabilities are yet to be taken care of. This is why you cannot, on your own accord, decide to close down a failing business or sell it off when creditors are hanging in the balance. However, one way to protect yourself from all these financial pressures is to file for bankruptcy. Indeed, it is not a solution, but it is the right financial move considering the circumstances.

Filing for business bankruptcy does not necessarily spare you from owning up to some responsibility. Business assets may be seized, evaluated, and sold during insolvency to offset some outstanding debts. Doing this under the bankruptcy umbrella allows your creditors to believe the process is fair. Furthermore, it saves you from costly and protracted legal actions against you by creditors and others who may have lost significant sums from the unsuccessful business.

When all the processes are completed, you may have the chance to start all over again. However, it is vital to do all the right things to protect yourself from legal suits that could hinder future progress.

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