When do you know it is time to file bankruptcy as a business entity? When is it advantageous to be bankrupt and when should you just simply close your doors?
Did you know that bankruptcies for companies are up approximately 65% from just a few years ago? It is a growing recent trend that may have more to do with the economy than anything else. So, when do you know it is time to stop and hang up your hat?
Read on to find out more about businesses that become bankrupt.
Long-Term Cash Flow Crisis
The first thing an expert will tell any business owner is to know your cash flow. Understanding your cash flow gives you the ability to find the gaps in your present system. You can then plug holes and adjust your cash accordingly.
Long-term cash flow problems are a sign that your situation isn’t a result of a few late-paying clients or vendors missing a payment. Instead, it is a sign you have a major problem with your system, products, or services. If you have tried to fix the problem multiple times but still can’t create a viable change, you have two choices.
Either seek help from an expert or call it quits. Experts can help you plug any holes in your cash flow and market your small business on a shoestring budget. Unfortunately, they also cost money that you may not have.
Personal Assets at Risk
If you set your business up as a sole proprietorship, more than your business might be in jeopardy. In this case, the law doesn’t differentiate between your business assets and your personal assets. If you have run up debt in your business, you may have your personal assets seized.
That includes your retirement accounts, life savings, kids’ college funds, and home. In this case, filing for bankruptcy will protect your assets.
Even if you have structured your business as an LLC, you might still be in trouble. This is only true if you are guilty of mixing your business and personal finances. That could potentially negate your corporate structure. So, the courts could hold you personally responsible for financial liability.
You Have Researched Other Options
Make sure you assess all your options before filing for bankruptcy. They may save you from all the paperwork and bad credit scores attached to filing bankruptcy. Businesses often run out of money. Other options have evolved to help keep a small business running in times of crisis.
Try debt consolidation or refinancing. Lowering your monthly payments may be just enough to keep you out of the red.
Try an Assignment for the Benefit of Creditors (ABC). In essence, an ABC gives you an out-of-court alternative to a Chapter 7. They can be complicated, so please seek out advice from bankruptcy experts.
You Are Filing Bankruptcy in Order to Rebuild
You may also create a strategy that relies on bankruptcy. Sometimes in order to rebuild your credit or negotiate new contracts or financing, bankruptcy is the best option. Just be sure you have done your research, and it really is the best option.
What Is Next For Businesses On The Edge Of Bankruptcy?
If you are wondering how to file for bankruptcy, you have two choices. You can risk the attempt yourself, or you can get help from a lawyer. We always recommend the later. Lawyers are liable for any paperwork they file on your behalf and responsible for any screw-ups.
If you found this article helpful, take five minutes to check out our other small business and entrepreneur articles.
So long and good luck facing your financial future. You can get through this, whatever choice you decide on for your business!