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Sathya Devarakonda
Project Manager, India
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How to Avoid Bankruptcy
As this is a forum to discuss about Business Bankruptcy, here are three ways to avoid bankruptcy (novices can think particularly startups):
1. Hire a CFO who can get money from a bank or an asset management company to resume the operations or to re-invest in certain areas that would renew the business and also make it more profitable.
2. Hire a CEO who can change the strategy while selling some stocks to a partner.
3. Indemnify the company (which insurance companies do) way before the company gets into a sick condition.
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Warren Miller, CPA, CFA
Strategy Consultant, United States
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How to Avoid Bankruptcy
@Sathya Devarakonda: Hiring a great CEO and/or a great CFO is unlikely to put a company that's on a trajectory to bankruptcy into one that will avoid it. Such hires can delay bankruptcy, of course. Bankruptcy most often occurs when companies...
1. Don't have budgets that they compare to actual results, and then analyze the reasons for the major disparities;
2. Don't understand the long-term trends of the industry they're in (think bookstores in the mid-1990s when Amazon arrived on the scene);
3. Don't compare their performance on a relative basis to the performance of public companies in the same or closely-related industry;
4. Have executives who fail to monitor a key measure of productivity: revenues for the most recent twelve months per full-time-equivalent employee...
5. AND then compare that productivity metric to the metric for some individual smaller public companies in the same same or closely related industry.
In the United States, I don't believe it is possible for a company to get insurance to indemnify them from bankruptcy. Most often we're seeing a failure to have a basic understanding of the economics of the industry they're in and also what their closest competitors are doing to compete, either better or worse, than the subject company is. Insurance companies aren't in the business of protecting badly-managed companies from the consequences of their bad management.
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John Henry
Project Manager, United States
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How to Avoid Bankruptcy... Abridged Version
1. Do not borrow more money than your business or (...)
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Sathya Devarakonda
Project Manager, India
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How to Avoid Bankruptcy - a Comment or a Note
@Warren Miller, CPA, CFA: Sir - My note is for com (...)
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