2. Stave Off Cash Flow Problems. When you realize you don't have enough revenue to pay the bills coming due, slow your "burn rate" immediately by cutting expenses to the bone. Then prepare a short-term cash projection and plan for your immediate needs. Make a list of the monies owed to you, and collect as much of it as possible. Pay the necessary items like taxes and overhead costs, but delay paying other bills by working with suppliers and other creditors.

3. Don't Lie About Debts. When a business starts to have financial troubles, its owner may frantically try to borrow more money. Before doing this, think carefully about whether your business is really likely to do better in the near future or if you're only likely to compound your debt problems by borrowing more money. If you do decide to apply for a new loan or to consolidate old ones, be forthright in disclosing the financial condition of your business. If you misrepresent your debts to get a loan, the law may regard your new debt as having been obtained by fraud. This would mean you are personally liable for the debts, even if you go through bankruptcy. Where big bucks are involved, the debt could haunt you for many years.

4. Be Careful About Transferring Business Property. Sometimes, out of desperation, a business owner will try to protect personal assets by hiding them. Since creditors are used to ferreting out such hidden assets, by and large these tactics are ineffective and are likely to give rise to civil and even criminal charges of fraud. Specifically, a business owner shouldn't
(1) transfer assets to friends or relatives in an effort to hide them from creditors or from the bankruptcy court, or
(2) conceal property or income from a court.

5. Avoid Preferential Payments to Creditors. The Bankruptcy Code frowns on your paying some creditors and not others. This is called "making preferential payments." If you file for bankruptcy, all payments you make during the year before the filing will be scrutinized by creditors to make sure that some creditors weren't given an unfair advantage by being paid while others received little or nothing. Outside of bankruptcy, if you owe money to creditors who hold collateral, the creditors have special rights in the property that is the security for the debt, but you may legally pay one unsecured creditor ahead of the others.

6. Protect Your Bank Account. If you face serious financial problems and owe money to a bank, it's often wise to keep most of your checking and other accounts elsewhere. This is because typically your loan agreement gives the bank the right to take your funds without prior notice if the bank thinks you're in financial trouble. (This is called a "setoff.") It can be a rude surprise to learn that your favorite lender has suddenly drained your checking account.