By: Peter J. Lamont, Esq.
If your small business is struggling financially, the thought of declaring bankruptcy may have crossed your mind, at least in passing. In some cases, bankruptcy may be necessary, but you should view it more as a last resort, not a first choice.
Though there are some exceptions, most small businesses that attempt to reorganize in Chapter 11 bankruptcy never manage to turn things around enough so that they are able to both satisfy their creditors and emerge as a going concern. Liquidating your partnership or corporation with a Chapter 7 filing will end your business, but could leave it much harder for you to make a new beginning. Besides the impact a business bankruptcy could have on your future business plans, if you’re personally liable for any business debts, this could carry over into your non-business life.
So, before settling on bankruptcy, it makes sense to explore any other options you may have for getting your business back on a solid footing. Fortunately, you may have more options that you realize. Consider these alternative steps.
Manage Your Finances Better. First, sharpen your pencil. Next, starting with the biggest items, take a close look at your business patterns of spending and income. Look for outlays to cut or eliminate (then prioritize expense items left on your list), and ways to accelerate or increase income.
Any efficiency-booster appropriate to your business is fair game for this review: promoting quicker payments by your customers, speeding inventory turnover, increasing transaction revenues or reducing their cost – the more operating profit your business can produce, the less deficit or debt you’ll have to worry about.
Raise Cash by Selling Assets or Finding Investors. If you have little-used equipment or supplies or slow-moving merchandise, figure out what it could bring if you sold it off. Especially if you have major creditors in fields related to your business, are there any that might be interested in acquiring a share in yours in exchange for new funds or debt forgiveness? A new junior partner today might even turn out to be an exit strategy down the road.
Talk with Your Creditors. You don’t have to be Monty Hall to know sometimes it makes sense to propose making a deal. You may be able to negotiate a settlement for a lump sum below what you actually owe, or set up a payment plan that gives you more time to pay. Similarly, you may be able to work out a modification of business-related leases, loans and mortgages. If you lack the skills or confidence to handle negotiations yourself, there are law firms and service groups with experience working out this type of arrangement.
Be aware that there are many potential legal and business issues that will need to be considered – and while scams are not as prevalent in the area of business debt settlements as in their consumer counterpart, they are not totally unknown. So make sure you have a qualified advisor if you go down this avenue. In fact, having a capable, experienced business attorney on your team as you look for ways to get your business back in the black is a very good idea, no matter how you decide to approach it.
If you would like more information about this topic or have general legal questions, please feel free to contact me at (973)949-3770 or via email at firstname.lastname@example.org Offices in: New Jersey New York, Colorado & Puerto Rico and affiliated offices throughout the country.
© 2010-2015, Law Offices of Peter J. Lamont & Associates. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between the firm and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.