Most entrepreneurs start out with the best intentions, and they do what is needed to build a successful company. However, success isn’t always guaranteed, and small businesses go under for a variety of reasons. Whether it’s a declining market, poor economic conditions or poor management decisions, some businesses start out as promising ventures and then fizzle out. David James, founder of Business Growth Digital Marketing (BGDM), was a manager at his former company when it filed for bankruptcy and eventually transferred to a new owner. He shares lessons learned through the process and tips that other small business owners can use to avoid the same fate.



d james Sometimes Going Bankrupt Is The Best Thing For Your Next Business

David James
(Photo courtesy of David James)



Of the many lessons James learned through his former employer’s bankruptcy, the most important was the need to actively engage in business development. “The business had relied too heavily on existing clients. There was a natural rate of attrition. When clients started to leave, it made a huge financial impact on the business. Furthermore, there wasn’t enough pipeline business to recoup the losses.” He also mentions that a contributing factor to the decline of the business was a lack of cash flow. “Unfortunately, there was too much negligence between the management teams to ensure that the business was running profitably. By the time the internal audits were done, it was too late to recoup the lost funds. The business was burning money at a supersonic rate. The only way to combat it was to generate a vast increase in sales, however, the salesforce didn’t perform at the level required.”

These and a series of other missteps ultimately caused the business to file for bankruptcy. However, the company remained in business under new management. James learned some key lessons about brand equity and what to do after the bankruptcy proceedings. “Maintaining your reputation and credibility to retain clients through insolvency is difficult. We managed to keep 50 percent of our clients and then grew the business under new ownership. The business needed bootstrapping to grow again. This meant investment into human, financial and technology resources in order to make the business grow.”

If your company can’t maintain its financial obligations, it may need to look into filing for bankruptcy. While the process is painful and lowers morale, it is possible to emerge from the ashes to rebuild a successful business. However, keeping James’ advice in mind and maintaining marketing and human resources can keep you from having to make the decision in the first place.




This article was written by Alaina Brandenburger for Small Business Pulse



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