Small Business Bankruptcy … You have choices.
Small Business Bankruptcy Choices
Small business bankruptcy is not the only choice your have if your firm is in trouble. In my view, small business bankruptcy, either Chapter 7 or Chapter 11, is the least desirable alternative. To help you decide on what is best for your firm, we give you five choices when you are considering small business bankruptcy.
Chapter 7 Small Business Bankruptcy – Chapter 7 means liquidation of your small business. This only makes sense if you want to walk away. With this alternative, you file Chapter 7 and then let the US trustee takes apart your business for you.
Chapter 11 Small Business Bankruptcy – With Chapter 11, you continue to run your firm with oversight of the court. So, you lose control of your firm, but it does continue to run. You do get protection from your creditors in the short run since the court-ordered automatic stay prevents them from seizing assets. But the outcome is often not pleasant. The creditors usually end up owning your firm, and you are out as the manager. If you can’t pay the legal fees of $75,000+, the judge will normally order liquidation. Therefore, the result of Chapter 11 is the same as Chapter 7 usually.
Debt Negotiations – Instead of filing for small business bankruptcy, you can try to reorganize your finances outside a legal proceeding. You can do this by renegotiating your payment terms and amounts owed with each individual creditor. This can be a successful solution to your problems if you have a profitable underlying business and your troubles are because of an unusual circumstance such as a lawsuit or a onetime industry downturn.
Operational Improvement – Of course, you can always fix the cash problem of your firm by fixing the underlying business problems with your firm. This should include cash flow controls and the elimination of unprofitable products, services and divisions.
Business Turnaround and Restructuring – This is your best choice in our view for most firms. This is a combination of the Debt Negotiations and Operational Improvement Choices. By doing both of these simultaneously, you will improve your balance sheet, your cash flow and your profitability … and keep yourself out of insolvency.
For information on small business bankruptcy alternatives, a good publication is The Insider Secrets to Saving Your Business: The Step-by-Step Turnaround Guide. It explains in detail debt negotiations and operational improvements when a company is in financially distress. This guide is the bible for many turnaround professionals, so you should get a copy to help your firm through this difficult time.
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