How to Avoid Startup Bankruptcy: 5 Key Takeaways

November 15, 2023by Dan Saccani

Lately, we’ve heard tales from our beloved Dr. Doom, a Chief Restructuring Officer who can help turnaround, or wind-down a startup depending on the circumstances. Here are 5 key takeaways from some of his lessons to avoid bankruptcy court:

1. Get Ahead of It: The Six-Month Runway Rule

In the high-stakes game of startup survival, foresight is your greatest ally. The golden rule? Always prepare when you still have six months of runway left. This is not just a buffer—it’s your critical window for strategic decision-making. It’s about knowing your burn rate, financial projections, and a clear action plan.

Anytime your startup has 6 months left of runway, its essential to start weighing risk factors – what’s the likelihood of raising capital in today’s market? How much off your monthly burn can your startup realistically cut? How many vendor contracts can you re-negotiate your A/P. What’s the appetite for M&A in your startup industry and sector, and what are those valuations? Most startups will find themselves in this cycle perpetually until takeoff.

2. Hire a Chief Restructuring Officer

When the numbers start to veer off course, it’s time to bring in a specialist. A Chief Restructuring Officer (CRO) is not a harbinger of doom but a savior of potential. This seasoned professional is versed in navigating financial crises and turning the tide in favor of the startup.

The CRO will dissect your financials, strategize on cost-cutting, and help reimagine your business model. Their expertise is not just in trimming the fat but in sculpting a leaner, more resilient organization that can withstand market turbulence and emerge stronger.

3. Work with Your Creditors and Vendors & Negotiate

Communication and negotiation are the lifelines that can keep your startup afloat. When cash flow tightens, it’s imperative to engage with your creditors and vendors proactively. Transparent communication can open doors to renegotiated terms, extended deadlines, and preserved relationships.

Negotiation is an art, one that involves respect, understanding, and a bit of finesse. It’s about finding that sweet spot where both parties can walk away with something of value, ensuring that the wheels of your startup continue to turn.

4. Always Take Care of the Government and Employees

Your responsibility as a founder extends beyond the balance sheet. It encompasses a duty of care to your employees and the government. Ensuring payroll obligations are met and taxes and other statutory dues are cleared is non-negotiable.

Neglecting these can tarnish your reputation and invite legal complications that add to your troubles. A startup wind-down process that honors these commitments reflects a company that, even in adversity, holds integrity and responsibility at its core.

5. Utilize an Assignment for the Benefit of Creditors (ABC)

When all else fails and bankruptcy looms, consider an Assignment for the Benefit of Creditors (ABC). This powerful tool allows for a dignified and orderly wind-down of your startup, offering a structured way to deal with outstanding debts and obligations.

An ABC can be a strategic alternative to bankruptcy, often quicker and less expensive, allowing you to preserve some value for stakeholders and potentially lay the foundation for a fresh start.

Facing startup wind-down, bankruptcy, or debt? Ravix Group is your expert in startup liquidation, finance, & accounting. Manage your VC-backed startup journey right with industry professionals.

Need to speak to a wind-down expert immediately? Contact us for a free hour consult:

Dan Saccani

As the Founder and Executive Director of Ravix Group, an outsourced financial services firm for startups, Dan brings an impressive 35-year track record in the startup and technology sectors. With a focus on venture capital funding, debt financing, and mergers & acquisitions, and startup accounting, he has established a reputable position in the industry. Dan's expertise spans a wide array of sectors including life sciences, software development (saas), semiconductor technology, hardware innovation, clean tech, and the internet industry. In the last two decades alone, Dan has played a pivotal role in consulting with various startups, aiding them in navigating the complexities of financial growth and development. Under Dan's guidance, clients at Ravix Group have successfully raised over $1 billion in venture capital funding and secured $400 million in debt and lease financing. Dan has adeptly managed over $3 billion in mergers & acquisitions, showcasing a deep understanding of the financial landscape and strategic business growth in the tech sector.
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