There are many risks to running a business, and unfortunately, not all of them make it. Filing bankruptcy is often a last resort for business owners who try hard to overcome challenges to make it in the marketplace. Filing bankruptcy doesn’t always mean that it’s game over. In fact, some types of bankruptcy allow you to restructure your debt so that you can continue to do business. Here are some of the things you’ll need to do and some alternatives to bankruptcy.
Bankruptcy is an Option
When your business can’t pay its debts, you’re swimming in loan payments, need to pay your employees and you want to keep the lights on, sometimes the only option is to file for bankruptcy. Bankruptcy isn’t always bad. In fact, sometimes it can be good for businesses in tough circumstances. There are 3 main types of bankruptcies that businesses can qualify for. Chapter 7, 11, and 13 bankruptcies each has different purposes, risks, and benefits.
Talk With an Attorney
Before you file bankruptcy on anything, you’ll want to talk to an attorney. Your attorney will be able to look at your financial situation to help you decide on the best course of action. If you don’t want to shut your business down just yet, you may be able to seek something that’s not a Chapter 7 bankruptcy. In those cases, assets that are still essential for running a business end up liquidated to pay off debts. Not many businesses can survive that. In a Chapter 11 bankruptcy, the debtor could sell off some of their assets through a process known as asset sales as part of their business’ reorganization plan. You’ll want to find a platform that helps you to streamline this process.
Decide Which Type of Bankruptcy to File
Once a lawyer talks through your options, you get to decide what kind of bankruptcy you want to file. Chapter 7 bankruptcy is the most common and often referred to as liquidation. This is because you end up liquidating all of your assets to pay off your business debts. If your business has money left over after it covers all of its business bills, you would not qualify for this type of bankruptcy because you can use the remaining money to pay off debts.
In Chapter 11 or Chapter 13 bankruptcy, you end up restructuring your debts to give you more time and freedom to pay. The main distinction between them becomes mostly about who can and cannot use it for their business debt. For instance, a sole proprietor can use a Chapter 13 bankruptcy, but not a Chapter 11.
Prepare to Sell Off Assets
If your business is facing financial difficulties, it may be necessary to sell off assets. Assets include things like equipment and real estate as well as other property that can be used to help pay debts. However, before you begin selling off assets make sure to consult with a lawyer first, this way you can ensure that your sales are done in accordance with the law.
Close Underperforming Locations
If your business needs to file for bankruptcy, you may need to close underperforming locations. This can even be a step to take instead of filing bankruptcy to see if it puts your business in good standing once again. Closing a location takes a lot of thought including all the costs of doing business at that location. This can include labor costs, product costs, leases, and even utility costs.
Consider Selling to an Investor
Sometimes investors can be a way out of your financial woes. Selling your company or a portion of it is an option prior to filing for bankruptcy. There are legal issues around selling a bankrupt business and while not impossible to do, isn’t always the best option.
An investor is someone who provides money in exchange for partial ownership of a business. They may also provide capital in the form of loans or lines of credit so that you can keep growing while they take on some risk in return for their investment. If they see the potential in what you’re doing, but see that you are floundering on the business management side of things, their help can be invaluable.
Try to Settle Debts
Another thing you can do prior to filing for bankruptcy is to see if any of your debtors will let you settle accounts before you file. Try to negotiate with them for better lending terms, lower monthly payments, or even lower interest rates