Course correction: take these steps to veer off the path to bankruptcy.

• Author: Madison, Rachel
• Position: Entrepreneur Edge

A smart business owner is always in the process of reorganizing his or her company to adapt to the changing business environment--but when it comes to bankruptcy, restructuring and reorganization become even more paramount.

Learning how to avoid the severe financial distress that comes with the failure and liquidation of a business is one of the best things a new business owner can do. Here, experts weigh in on the steps companies can take to restructure effectively and avoid bankruptcy.

Understand cash flow. David Chase, managing partner of Advanced CFO Solutions, says the first thing any business ought to do is not be surprised by a shortfall in cash. "Business owners ought to be thinking well in advance, 'How do we keep a good view on our cash?'" he says. "Utilize the 13-week cash flow model. Within three months, you can take care of most challenges as you see them coming."

Chase adds that business owners should also put together a long-term cash flow view, which will help to define capital structure and give them a good view of how quickly they are spending their money and when they need to go to the bank.

Make due with as little capital investment as possible. Brian Rothschild, attorney at Parsons Behle & Latimer, says many young businesses invest in expensive offices, new equipment, flagship products and flashy marketing, but this strategy can burden a company with a heavy debt load. "[That] siphons off profits, restricts flexibility and makes the business' product more expensive.... If you can get by without it, do so," he says.

Adapt quickly to change. "Older businesses sometimes fall victim to upstarts because they fail to adapt to a changing business environment," Rothschild says, adding that upstarts have an advantage because they are considering all of their business processes--customers, product offerings, employees--for the first time from the ground up. "To ensure that the old way is still the right way, successful businesses [should] regularly evaluate everything from the ground up," Rothschild says. "Streamlining can change your business from surviving to thriving."

Do the math. Businesses sometimes fail because they are providing services or selling products that are not profitable, Rothschild says. "A business should be realistic in its internal accounting for the costs of goods and services that it offers, and raise the price of anything that is not profitable at current volumes," he says. "If the product is not...