Bankruptcy Protection for Small Businesses
If you’re a small business owner, the possibility of bankruptcy can be fairly high depending on your industry and how well your system can manage finances and sales.
Obviously, bankruptcy is not a pretty thought, but if this is your last resort, we’ll discuss some of your options, as well as some ways to protect your business from or avoid bankruptcy altogether.
Filing Business Bankruptcy
Chapter 13 | sole proprietorships, “wage earner’s plan”
Only for sole proprietorships, this option allows you to restructure your business and keep operating while paying the debt off over three to five years. But, there are debt limits to this allowance – Unsecured debts must be less than $394,725 and secured debts less than $1,184,200 (read more here uscourts.gov).
Chapter 11 | corporate bankruptcy, LLC, partnerships
This option can be risky, but it’s the only thing a business can do without shutting the doors. This allows any business to restructure and remain in operation while paying off debt over time. This is also the only other option for sole proprietorships who have too much debt to qualify for Chapter 13.
Chapter 7 | liquidation, doomsday, going out of business
This will have to occur if there are no means of keeping the doors open even with a restructure. A bankruptcy trustee is appointed to sell assets, including property (some property may be “exempt”), and pay creditors as much as is possible. No plan for repayment is created here, unlike chapters 13 and 11.
Before getting to the point of considering bankruptcy, there are steps you can take that will allow your business to run more smoothly and stay in your profit zone.
More Cash | small business loans
This may sound obvious, but the majority of small business struggles come from not having enough cash on hand when it’s needed the most. Struggling early on it might be possible to get investors to step up, but the best strategy is to apply for additional funding or line of credit when the business isn’t hurting for it.
Sometimes a business can get stuck in a rut with the same people and same ideas. If someone doesn’t step up and notice the issues that are going on and break old habits to start fresh, a change might be needed in management. These can be difficult decisions, but they are the only decisions that will keep the business alive and current.
Use a Consultant
There are consultants who specialize in helping failing businesses make those tough decisions, and this might be a good option for business owners who do not like rocking the boat with coworkers who have become good friends. As well, an outsider will usually be able to spot problems more easily and will create solutions that would save, and ideally, take the business to the moon!