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Bankruptcy is the last thing a promising startup wants. But unfortunately, more than 50% of businesses fail in their first two years. 10% of them are forced to shut down due to bankruptcy. As pointed out by a Scottsdale Bankruptcy Lawyer, the right product at the wrong time is one of the most important factors behind business failures and bankruptcy. Other factors include improper utilization of funding, incompetent recruitment, inability to deliver on time, etc. However, bankruptcy can be prevented if startups are slightly more calculative and mindful right from the planning stage. Here are 4 ways how tech startups can prevent bankruptcy.
Testing the business idea before launch
The first maxim of a profitable business is a vision or idea that the current market can relate to and afford. Thus, prevention of bankruptcy starts even before you launch the startup. Prior to finalizing the business plan, you must get a pilot study of your business idea to gauge its relevance in the market. It will save you from wasting capital on a concept that will take at least another decade to earn relevance.
Hire an attorney
A lot of small businesses don’t consult a lawyer to avoid attorney fees. But that’s not exactly the best thing to do. A business involves several legal affairs and liabilities and non-compliance with them could lead to pricey monetary penalties. Most startup owners hardly have any idea about the legal liabilities to starting and operating a business. But when you are under a lawyer, the legal professional will take care of all legal responsibilities on your part so that you avoid penalties and fines. Your lawyer can also advise you on workplace safety measures to avoid personal injury lawsuits. Startups going bankrupt due to expensive personal injury lawsuits is not uncommon.
Make sure you have enough capital
Your business needs a sufficient sum of money to stay afloat. Thus, first calculate how much capital you need to start and run the business at least for the first 1 year. Then, try out all possible avenues to gather the sum. Whether it be through crowdfunding, business loan, VCs or angel investors – you need to find the initial business capital before you actually launch your startup. It will prevent the risks of running out of cash in the early stages.
Have a professional to take care of the numbers
Improper financial management is one of the major reasons behind startups going bankrupt. Fiscal management is an elaborate and time-consuming affair. A startup owner already dons too many hats – they are the marketer, production manager, sales guy, HR person and so on. So many responsibilities hardly spare the time needed to invest in financial management. Thus, it’s best to get an accountant who would be solely dedicated to the betterment of your finances.
Finally, be careful while hiring. Stress on enthusiastic, focused, and hardworking professionals who are mindful of delivery work on time.