Nobody imagines that they’ll have to file for bankruptcy when they start a new business. If they did, they’d save themselves the heartache of investing their time, money, and energy into it.
Unfortunately, however, many businesses do file for bankruptcy every year. Deciding to file is a difficult, but sometimes necessary decision. Filing for bankruptcy has many benefits for businesses struggling with finances.
Is it time for your business to file bankruptcy? We’re here to help you decide. It may be time if you can’t do these three things:
File for bankruptcy if you can’t…
1. Correct Your Cash Flow
Cash flow struggles are typical in the early days of a business and during growth. These struggles are not a reason by themselves to throw in the towel, though, especially if pending payments can cover costs vendors are demanding.
If your cash flow can be corrected by making some hard decisions, such as cutting employees and expenses or changing tactics, there’s no reason to push the button on bankruptcy just yet. However, if you are past the point of resolution, it’s time to start considering bankruptcy as an option.
2. Protect Personal Assets
Unfortunately, sole proprietors and general partnership members are at the greatest risk as a business starts questioning its finances. Because there is no legal separation between these business owners and their personal finances, assets including savings and real estate can be seized to pay off business debts.
However, there are other business owners at risk if they signed a personal guarantee. These guarantees are usually a part of business loan or other startup capital agreements, and owners of businesses of any structure may have signed one while acquiring finances to start or run their business. If you took out a business loan or borrowed capital, check to see if you signed one of these.
While structuring your business as an LLC or corporation offers some protection, it won’t help if you haven’t been adamant about keeping your business and personal finances separate. If you’re guilty of this financial blunder, and struggling to keep your business afloat, it may be time to look into filing bankruptcy.
3. Use Other Options
Fortunately, there are other options to rescue your business’ finances that should be explored before filing bankruptcy. A good bankruptcy attorney will make sure you haven’t already negotiated with creditors, looked into debt consolidation or refinancing, and considered the Assignment for the Benefit of Creditors.
If you haven’t looked into these, an attorney can assist you with these paths if they can prevent you from declaring bankruptcy.
Think You Should File?
While filing for bankruptcy is a tough decision, it can make your life easier. Before filing, make sure you know which chapter is right for you, and make a post-bankruptcy plan to keep your finances on track.
Luckily, with help such as that provided by Stephen L. Burton, Attorney-at-Law, filing bankruptcy for your business can re-open the path to financial solvency.