When you first open a business, you likely never thought you would eventually have to file for bankruptcy. You had big plans and even bigger dreams for your venture. Even with all this planning, threats from the competition, changes in the marketplace, and even global pandemics may force you to file bankruptcy.
The American Bankruptcy Institute has reported that more than 24K businesses file for bankruptcy each year. While this is important to understand, it is also crucial you know the signs that it may be time to consider this for your own business.
While cash flow challenges are usually the initial warning sign you may need to file for bankruptcy, you should remember that bankruptcies are generally not the result of just one or a few missed vendor payments or late-paying clients.
If you are experiencing a bad month, quarter, or even a bad fiscal year – but there is light at the end of the tunnel – now is the time to take steps to get your business’s financial system back on track. While this may involve some hard choices, such as cutting personnel, expenses, and even your salary, it will be worth it, in most cases.
However, if you are behind with several payments, multiple suppliers, and are unable to see any viable solution, making internal changes may be ineffective. If your business has been behind on payments for six months or more, bankruptcy may be a smart option.
One of the main reasons to file bankruptcy is to protect your personal assets and to keep them from being taken by your creditors. This also means that there is no reason you need to file for bankruptcy unless you have personal assets at risk. If you are not sure if your assets are at risk, you should consult with an attorney or accountant.
If you have protected assets through the business structure and financial management, you could merely close up shop and walk away without going through bankruptcy. However, if you have implicated your personal property or savings into your business’s liabilities, bankruptcy may be the most effective option for saving these items.
Sometimes, there may be other options besides filing for bankruptcy to solve your problems. While the alternatives may not save your business, they could help you avoid many of the credit ramifications and legal costs associated with filing for bankruptcy.
To determine if an alternative may suit your situation, it is a good idea to discuss all your options with a bankruptcy attorney. They can evaluate your case and help you make the right decision. While many people can avoid filing for bankruptcy for their business, it can provide a suitable solution for serious issues with your business. Knowing the options and what is best for you is the only way to know what decision is right for your needs.