Every entrepreneur knows that starting a business is hard, and starting one after bankruptcy is even harder. After months of having your income, expenses and assets dissected, your credit score is probably badly damaged. The good news is many entrepreneurs have gone through personal bankruptcy and then returned to start great companies. General Motors filed for bankruptcy and got back up and running. Delta Airlines did the same. Even Six Flags bounced back after declaring bankruptcy. Bankruptcy is stressful but not the end of the road. Here are six rules to help you get back on track to rebound from bankruptcy.
At Delancey Street, we are in the business of negotiating new terms with various business creditors on behalf of a business owner who is struggling. We are not a law firm. A lot of the owners we talk to are considering their options, and sometimes, those options include filing for bankruptcy; if that happens, we refer the client to an independent attorney who will take it from there. But whatever the route you choose to go, the task of rebuilding your life in the wake of all of this will be similar, and this is where these rules come in.
A Financial Plan Is Essential
The first rule is to create a financial plan. If you are starting a new business or rebuilding an existing one, a financial plan is essential. You need to gather all of the information about your current assets and liabilities. What debts do you still have? How much do you owe? You need to set concrete numbers on all of this. Having a clear picture of where you are will help you figure out where to go from here. Then you can make an appropriate plan for the future.
Second, rebuild your credit score. Bankruptcy has a huge negative impact on your credit score. It can take a long time to rebuild. A Chapter 7 bankruptcy will remain on your credit report for 10 years. A Chapter 13 bankruptcy will remain on your report for seven. Unfortunately, you can’t get the bankruptcy off of your credit report, but you can start rebuilding your score. The easiest way to rebuild is to make payments on time. A person’s payment history is one of the largest factors used to calculate their credit score. It is also important to check your credit report on a regular basis. A person’s credit score is updated every 30 to 45 days, so it is important to check it about once a month.
Third, reduce your operating costs. Once you’ve gotten back in business, take a hard look at your expenses and lower them to the bare minimum. Break your expenses down into fixed and variable costs. What can you eliminate or reduce? Do you need to lower your own living expenses and compensate yourself less? Could you lower your expenses by operating on a reduced scale or with fewer employees? It can be painful to have to scale back because it can impact your ability to grow, but this will only be a temporary setback until your business becomes profitable again.
Fourth, rebuild your savings. The obvious benefit of reducing your spending habits is that it becomes easier to save. Having a cash reserve also reduces stress while rebuilding, as you aren’t always worrying about running out of money. The amount you save depends on your situation, but most financial experts recommend saving three to six months’ worth of expenses. You could set up an automatic transfer to your savings account every month so you don’t have to remember.
Fifth, build strategic partnerships. Some vendors and suppliers may be skeptical of doing business with you again after your bankruptcy. Ramping them back up again will require work on your part, but it is possible to do so. Talk to your vendors up front, acknowledge your missteps. Walk them through how the business will be doing things differently. After you start paying on time and fulfilling the contracts you sign, you’ll start to win back their trust.
Sixth, keep moving forward. Do not allow bankruptcy to cloud your thoughts or prevent you from fully engaging in your business. Bankruptcy can be an opportunity to reevaluate the current state of your business and your finances. Own it, keep your spirits up, and you can be even better than you were.
The First Consult at Delancey Street
If you are still under debt pressure and not sure if bankruptcy or settlement is better for you, call someone before you make the decision. The first consult at Delancey Street is free and confidential. If there is a cheaper option or bankruptcy counsel is the better course, we tell you on the first call. And, either way, these are the rules for starting over.
