Only about 10 percent of businesses that operate under Chapter 11 bankruptcy ever recover. Chapter 7 bankruptcy, total liquidation of your business, is an even less desirable option. Besides the risk of losing your business and the stress on yourself and your employees, hiring a lawyer to handle a bankruptcy can be expensive.
The disadvantages of bankruptcy include:
- Hefty attorney fees. Declaring bankruptcy may be the last chance for a failing business, but bankruptcy attorneys aren’t cheap. A business bankruptcy judge can also order liquidation to pay for legal and attorney fees.
- Loss of control. When your company is in bankruptcy, a judge has last say over all major decisions.
- Enter taxman. Even after a company declares bankruptcy, the IRS can still collect back taxes and seize company assets. The IRS can also target personal assets if employment taxes are due.
- Chapter 11 is often the beginning of the end for troubled companies. With a little cash and a lot of ingenuity, these companies could have avoided bankruptcy altogether.
Here are some of the best ways to avoid bankruptcy:
Action Steps
The best contacts and resources to help you get it done
Right size
Unfortunately, one of the first steps to take to save your business may be letting some employees go. Laying off 60 percent of a staff is common in situations where the company is on the brink. Today, employees realize downsizing isn't their fault, and you may even be able to rehire some workers after business improves.I recommend: Personnel Policy Service Inc. provides resources on what to consider in laying off employees legally and ethically.
Get back in the black
Restructuring debt is a prerequisite for filing for bankruptcy and, if done correctly, can help you avoid filing at all. The process enables debtor firms to reorganize to return to positive cash flow and creditors to get the highest possible return. The best technique is to negotiate debt discounts and payment extension plans with your creditors.I recommend: The Commercial Debt Counseling Corp. provides advice as well as a free, confidential evaluation of your debt on their Web site.
Hire a turnaround management specialist
Have specialists look at where your business is failing and determine why the mechanisms you have put in place haven't stopped the bleeding.I recommend: The Turnaround Management Association, a nonprofit association focused on corporate renewal and turnaround management, has tips to help find the pain points. Turnaround Consultants International also highlights phases a company should expect to go through during a restructuring. Find a specialist at the Association of Certified Turnaround Professionals.
Go with the flow
Cash management is the key to sustaining your business. You need to have the best accounting practices to squeeze every dollar out of your business to stay solvent.I recommend: Try this 13-week critical plan for cash flow from CPA firm Michael Goldman & Associates.
Follow the money
Collecting receivables is key to improving cash flow and getting your business back on track.I recommend: VC and business incubator Gaebler Ventures provides advice on the most tactful ways to get the money you're owed.
Tips & Tactics
Helpful advice for making the most of this Guide
- Pay cuts: Reducing salaries (especially for senior management) and hours may be a way to avoid layoffs.
- Taxes: If you're behind on your taxes, you may be able to work out an installment plan with the IRS.
- Be honest: Let your employees know what's going on and why belts need to be tightened. Let them feel like they're part of the turnaround process as well.
- Know what kind of personal liability you have for your businesses debts. Depending on how the business is structured, you may be personally liable for more than payroll taxes.
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Bankruptcy, estate planning, and asset protection planning in Southern California. Conveniently located in the Old Town neighborhood of Pasadena.
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Bankruptcy, estate planning, and asset protection planning in Southern California. Conveniently located in the Old Town neighborhood of Pasadena.
www.rclim.com
Commercial Bankruptcy Resources
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