Insolvency, also known as bankruptcy, is the state of one being unable to pay money owed by a company or person in time. The two states of bankruptcy are the balance sheet and cash flow insolvency. Insolvency is determined based on various factors such as liabilities, date of measurement, assets, and the taxpayer. To avoid bankruptcy, one should keep track of their expenses based on their income or returns in the case of a company.
This article highlights ways you can avoid going bankrupt while in Uni. Please read on!
1. Start Budgeting
Creating a budget is one of the significant steps in avoiding insolvency. To create a budget, you first have to determine the amount of money you receive, savings, and expenses. After determining your cash flow, you need to review and then implement your budget plan. The written budget helps you identify the strength and weaknesses of a business and defines a definite scale of preferences.
Estimating your income or returns will depend on whether it is regular or irregular. For steady income, one can easily define the expected revenue or profits after a particular duration of time, and budgeting for expenses becomes more tranquil. In case your cash flow is irregular, a good savings plan will be essential during high-income periods to cover up for expenses during low-income periods, thus avoiding insolvency.
Creating a budget involves taking into account project expenses. Expenses may be periodic or regular status. Regular costs are easy to manage, whereas periodic payments fluctuate with time, necessitating a reasonable budgeting plan to avoid drawdowns when the expenses are too high than expected. Record keeping of expenditure on various resources helps to project the costs and come up with a definite plan in budgeting.
2. Limit your credit card use
Restricting yourself not to use credit cards is also a way to solve business insolvency. Although credit cards tend to have many advantages such as building credit and protecting purchases, inappropriate use tends to increase the level of expenses in relation to the amount a business or an individual can comfortably sustain. The temptation to raise expenditure is high since credit cards allow the making of these purchases leading the company or an individual into insolvency state. To avoid getting into such scenarios, limit the use of credit cards as much as possible.
Avoiding or reducing the use of credit cards is possible in various ways. Examples include using the credit cards only when making emergency purchases, create a budget, paying credit balances on time, limiting the number of credit cards, and also keeping a record of all purchases made. For individuals, leaving the credit cards at home reduces the temptation of using the card as it is already out of reach. To avoid insolvency, one requires a proper account and control of expenditures, and limiting the use of credit cards serves as a significant factor.
3. Negotiate for lower Interest rates
Settling for lower interest rates on your credit cards, for example, can help avoid insolvency. Negotiating for lower interest rates is a process that should be made by the cardholder with the card issuer. Patience and persistence are crucial in this negotiating process. Having lower rates may increase your credit scores by making you pay off the debt sooner.
Good credit habits are essential after lowering the interest rates to ensure that the card issuer deems you creditworthy. Limiting the use of credit cards is one of the good credit habits. Proper budgeting and establishment of emergency savings account act as securities making it easy to maintain good credit habits.
Maintain your perspective
Maintaining your perspective involves having a scale of preferences and not letting any external factors affect how you manage your finances. Proper planning, budgeting, and accounting for all expenses and monitoring cash inflow are some ways in which an individual or business can maintain its perspective. To avoid insolvency, all these require proper record keeping to aid in the tracking of the business progress. An adequate business progress record gives an alert of any business debts hence proper handling of debts.
Avoiding insolvency is the key to success for any business where corporate or individually owned. Priority on a proper strategy on how to manage finances and avoid bad debts will help keep a business even when under significant financial crisis.