Inattention to finances is never a sound business strategy

 Many small businesses fail early on because of a lack of insight into dealing with financial pressures.  While undercapitalization is a common problem there are many other factors that also come into play in undermining a small business financially.  A small business owner should from the start set up a proper set of book keeping procedures that will enable him or her to understand what is happening with the business’ finances.  A small business should keep proper records so there can be a clear record that can be reviewed when necessary any day the businesses financial situation.  This record should include information on the businesses assets and liabilities.  In assessing liabilities it is important to keep a proper record that can be reviewed of the business’ ability to pay for regular expenses, total amount of debt outstanding, financial status on all real estate related matters of the business, accounts receivable, judgments, if any, held by the business against others, judgments by creditors against the business, bank loans, utility payments, medical insurance, credit card obligations, contractual obligations, checking account balances, motor vehicle loan payments, medical insurance premiums, worker’s compensation insurance premiums, contents and liability insurance premiums, and tax obligations.

While each business must assess its own unique financial condition, there are some common type of situations that lead to financial instability resulting in the need to close the business and/or declare bankruptcy. What follows are some common types of situations that may lead to severe financial problems:

  • Making purchases without research and comparison-shopping.
  • Making large purchases that are beyond the business current ability to pay for them.
  • Purchasing things under payment arrangements that call for high interest rates.
  • Purchasing items with a credit card that are not affordable under the circumstances.
  • Utilizing a credit card to pay on bills and/or bills due on other credit cards
  • Inattention to the interest rate that a credit card carries with it.
  • Spending beyond the credit limit set by an account and incurring charges for being over the limit.
  • Spending money on advertising that is beyond what is reasonably budgeted in the hope that it will generate enough new business to pay for itself right away.
  • Taking large salaries that are beyond the current income of the firm.
  • Keeping too little cash in reserve to handle business slow downs, declines in income or emergencies.


Too many small businesses wait too long to do an evaluation of their financial situation.  A small business finding itself deeply pressed financially can contact a law firm that handles business financial issues to arrange to meet with a licensed lawyer.  At the meeting with the lawyer there can be a discussion of the legalities involved with the situation and, if desired, bankruptcy and alternatives to bankruptcy that might be available.  In situation where there is a great amount of unpaid debt the business owner can explore potential legal help including relief under the federal bankruptcy law.

This article is not intended to give legal advice and does not do so.  The reading of this article does not establish an attorney-client relationship or substitute for consulting with a licensed lawyer.

We are a debt relief agency. We help people file for relief under the Bankruptcy Code.

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