How to Avoid Bankruptcy? Restructuring Your Business

Avoiding bankruptcy does not just mean staying in business, but also following a disciplined process to regain solvency and control before a court, creditor, or market force decides for you.

This guide is intended for owners and boards of directors who need a practical roadmap—legal, financial, and managerial—to stabilize their business across national borders. The guidelines apply to all jurisdictions internationally and are intended for serious evaluation, not promotional advice.

But how to avoid bankruptcy in practice? From an operational point of view, by stabilizing the company’s liquidity and, at the same time, restoring margins so that the business can continue to operate even in stressful situations.

Early levers often include business process reengineering, drafting a business restructuring plan, and—where independence helps—engaging a business restructure consultant.

Understanding Bankruptcy Risk in Business

“Bankruptcy” refers to the condition in which a company is no longer able to meet its financial obligations to its creditors. There is no single type of bankruptcy, nor is there a single way to deal with it.

For example, the most common cases involve liquidation (cessation of the business through the sale of assets), corporate reorganization with subsequent debt restructuring to continue operations, or even insolvency and therefore the inability to honor commitments—the worst-case scenario. It is often possible to pick up warning signs to correct the course and avoid bankruptcy, even before personal guarantees or liabilities are triggered. Negative cash flows, missed or delayed payments, and pressure from creditors are all signs that should not be underestimated.

Finally, bankruptcy is sometimes caused by unfavorable economic cycles, poor corporate management, or excessive debt that becomes unsustainable in the long term.

Causes of Financial Distress Leading to Bankruptcy

Most bankruptcies start with fundamental issues. Revenues decline or market share shrinks, but fixed costs do not adjust quickly enough. Logistical problems drive up the prices of production factors; productivity declines; credit card fees increase; and card debt grows in small increments. Over time, rising debt and short loan maturities force challenging deadlines. Legal causes, warranty claims, or uninsured events add friction (maintain adequate insurance). Weak governance amplifies all of this: lack of visibility into the unit economy, slow pricing decisions, and delayed responses to customer loss. None of this guarantees failure, but it widens the road that leads to it.

First Steps in Avoiding Bankruptcy

So, how to avoid bankruptcies and remain competitive?

• Conduct an internal financial audit: The first step is to check your economic and financial situation. Verifying existing debts, cash flows, balance sheets, and receivables is essential to get an overview.
• Involve external legal and financial advisors: Consulting qualified professionals allows you to develop competitive restructuring and reorganization plans.
• Communicate transparently with stakeholders: Talking clearly with employees, suppliers, and partners helps build trust and collaboration.
• Renegotiate debt terms: If possible, restructuring existing debt is a godsend for a company, allowing it to gain time and resources to get out of quicksand.

Business Restructuring Strategies

Restructuring is messy but doable when tackled in parallel streams:

• Operational restructuring: A good idea is to release liquidity and improve internal efficiency. The goal is to reduce (where possible) fixed and variable costs by reviewing the supply chain and simplifying production processes.
• Financial restructuring: The second step is to stabilize your debt position. If possible, refinancing your debts allows you to obtain more favorable terms or defer payments. This buys you valuable time to relaunch your business.
• Strategic restructuring: In this case, the goal is to relaunch the business model by focusing only on what is truly profitable and selling unprofitable activities.

If necessary, drastic measures such as leadership and management changes can also be taken to improve business management.

Legal and Regulatory Considerations

Regulatory frameworks vary from country to country, but some points of reference may be useful. In the United States, Chapter 11 grants a moratorium (automatic suspension) during the negotiation of a plan; Chapter 7 provides for liquidation when reorganization does not preserve value; Chapter 13, intended for small businesses with personal liabilities, allows for the restructuring of consumer obligations; and Chapter 15 coordinates cases involving multiple jurisdictions.

The UK CVA and restructuring plan instruments allow for compromise outside of liquidation. In all systems, compliance with labor, tax, and reporting rules is important during the pre-bankruptcy stages; rules on fraudulent transfers and preferences control last-minute moves that favor one party. It is important to keep clear minutes, independent valuations for the sale of assets, and transparent information packages for creditors.

Working with Creditors and Investors

In order to avoid bankruptcy, it is therefore very important to work with creditors and investors in simple steps.

• Approach to negotiations with creditors and suppliers: In a crisis, it is necessary to maintain a transparent dialogue with banks, financial institutions, and suppliers. Clarity demonstrates responsibility and opens the door to fruitful negotiations, where financial counseling can often provide an independent perspective that facilitates compromise.
• Structure partial repayments or grace periods: Payment deferrals, moratoriums, debt relief, and partial debt repayments allow the company to buy time and reorganize.
• Role of investors: In critical situations, investors can intervene by providing capital increases and loans. However, the contribution of this capital must always be sustainable: dilution of the company’s share capital can lead to loss of control.

Cash Flow and Liquidity Management

Cash is the language of turnaround. Develop a 13-week forecast and reconcile it weekly with your bank reality. Prioritize essential expenses (people who generate revenue, inputs that ship quickly) over projects that would be nice to do.

Accelerate receivables with clear invoicing: improve collection and extend payments within suppliers’ tolerance limits.

In some cases, you may also be able to sell underutilized assets to generate the cash needed to get back on track.

All of this should be documented in a cash flow document that the board of directors reads every week.

Temporary Measures vs. Long-Term Solutions

Measures can be adopted include temporary and long-term measures. The former allows liquidity losses to be containedthrough solutions such as access to state support, temporary staff reductions, debt relief, or deferral of bank loans.

Long-term measures, on the other hand, call into question the entire organization. They require business innovation and, in some cases, even market repositioning.

Unfortunately, the most common mistake is to rely on immediate solutions. In reality, it is advisable to use temporary measures to contain losses, but they must be integrated into a serious recovery plan.

When Bankruptcy Becomes the Only Option

If liquidity remains consistently negative, liabilities exceed assets, and the main units cannot earn enough to sustain themselves, bankruptcy may be the only legal option. There are three possible routes. Liquidation involves selling assets to repay creditors. Receivership places the company in the hands of a court-appointed administrator to preserve the business value. Finally, reorganization allows the company to continue operating under court supervision.

In any case, the company must prepare for bankruptcy by informing employees, suppliers, and partners. It must also rely on consultants who can advise on the most appropriate course of action.

Professional Support and Restructuring Advisors

Corporate restructuring consultants, lawyers specializing in insolvency, and even a qualified credit counselor can be key figures during bankruptcy proceedings. The former help identify possible exit strategies and recovery plans, while lawyers are needed to understand the implications of the various procedures.

In some cases, directors also rely on professionals offering debt management and credit counseling to negotiate effectively with creditors and stabilize obligations.

FAQs

What is the first step to avoid bankruptcy?

Assess weekly cash and hard obligations, then speak with advisors who handle turnarounds. Quick wins (expense cuts, short-term credit support) buy time while you design the longer plan.

Can restructuring really help avoid bankruptcy?

Yes. When applied early, operational fixes plus debt consolidation, selective debt settlement, and divestments can restore runway and keep bankruptcy off the table.

How can I talk to my creditors about my financial problems?

Be proactive and specific. Share a forecast, request defined relief (duration, rate, grace period), and link concessions to specific milestones. Respectful transparency keeps creditors engaged.

Are there global rules for business restructuring?

There is no single regulatory framework that governs all countries. However, many systems present informal solutions and court-supervised tools.

When should I consider filing for bankruptcy?

If restructuring fails, liquidity remains negative, and negotiations stall, bankruptcy may be necessary to preserve value and impose a plan on dissenting creditors.

What professionals should I work with to avoid bankruptcy?

Corporate lawyers, turnaround CFOs, accountants, and advisors experienced in credit counseling, debt management, and cross-border bankruptcy practice.

References

AcademyFlex. (s.d.). The Comprehensive Guide to Corporate Restructuring and Turnarounds. 

The Comprehensive Guide to Corporate Restructuring and Turnarounds

Number Analytics. (2025). Restructuring Advisor’s Role in Bankruptcy and Financial Restructuring. Retrieved from Number Analytics website

https://www.numberanalytics.com/blog/restructuring-advisor-role-in-bankruptcy