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6 Signs Your Business Should Consider Bankruptcy
websitebuilder • Dec 21, 2020
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The decision to file bankruptcy is rarely an easy or a fast one. And for businesses that may have more at stake, it can be a harder choice. How can you know that it's time to seek bankruptcy protection for your business? You may need to look for some of the common indicators that you can't fix the company's problems on your own. Here are a few things to look for and why they're important.
1. Cash Flow Decreasing
Every business has cash flow problems on occasion. A customer may pay late or a contract might fall through. But if your cash flow - even if it's still positive - has been consistently getting worse, there is a more fundamental problem. If you can fix this foundational issue through restructuring debts and business operations in Chapter 11, the business has a fighting chance.
2. Very High Leveraging
Borrowing for various reasons isn't an inherent problem for any company. In fact, it can be a healthy part of business. But if your company has continued to borrow for the wrong reasons - like funding day-to-day expenses - and is now over-leveraged, it's losing money on a regular basis. Chapter 11 offers a chance to get out from under a lot of debt and focus on finding the reasons why you can't cover expenses.
3. Missing Payroll
Failure to make payroll - or even the possibility that it might happen - should be a big red flag for any company. Why? Payroll is not like most other obligations. There are serious consequences to missing this payment. Employee morale goes down, your reputation is permanently damaged, and you may get a visit from your state labor board.
Any employer at risk of taking this step has already exhausted other options. And when you've exhausted the normal options to maintain positive cash flow, it's time to look into the safety net provided by business bankruptcy.
4. Needing More Capital
The choice between borrowing money and injecting new capital is an important one. When you borrow money, it's usually for a temporary problem or challenge. You might need to finance a new piece of equipment, for instance.
But when the company needs additional contributions of capital funds from owners, officers, or investors, it represents a more permanent challenge. If the problems that led to this necessity aren't addressed, those funds will be less effective than they should be. And you may wind up back where you started but with fewer options.
5. Key Employee Turnover
How do key employees feel about your company's decisions and actions? The employees who are aware of management decisions but also work to implement those decisions often have an important perspective on how things are going.
If you've lost important employees on a regular basis, analyze why that might be. Are employees frustrated with the company? Are they jumping ship? Are they quitting without a new place to work? Do they feel blamed when things go wrong for the business? If so, maybe your employees are telling you that the company needs a radical shift in how it operates - something you can accomplish in restructuring.
6. Increasing Interest Costs
Analyze the amount of money your business has paid over time in the form of interest, late fees, origination fees, and penalties. These expenses are side effects of missing and late payments, borrowing more money, and disorganization. So the more you're paying to compensate for ongoing financial woes, the more you should consider finding a more permanent solution.
Is your business suffering from any of these indicators? More than one? If so, start taking control by learning how Chapter 11 or even Chapter 7 can save it or protect you and your employees. Georgia businesses have relied on the legal pros at Custer, Custer & Clark LLC since 1938. Call today to make an appointment.
1. Cash Flow Decreasing
Every business has cash flow problems on occasion. A customer may pay late or a contract might fall through. But if your cash flow - even if it's still positive - has been consistently getting worse, there is a more fundamental problem. If you can fix this foundational issue through restructuring debts and business operations in Chapter 11, the business has a fighting chance.
2. Very High Leveraging
Borrowing for various reasons isn't an inherent problem for any company. In fact, it can be a healthy part of business. But if your company has continued to borrow for the wrong reasons - like funding day-to-day expenses - and is now over-leveraged, it's losing money on a regular basis. Chapter 11 offers a chance to get out from under a lot of debt and focus on finding the reasons why you can't cover expenses.
3. Missing Payroll
Failure to make payroll - or even the possibility that it might happen - should be a big red flag for any company. Why? Payroll is not like most other obligations. There are serious consequences to missing this payment. Employee morale goes down, your reputation is permanently damaged, and you may get a visit from your state labor board.
Any employer at risk of taking this step has already exhausted other options. And when you've exhausted the normal options to maintain positive cash flow, it's time to look into the safety net provided by business bankruptcy.
4. Needing More Capital
The choice between borrowing money and injecting new capital is an important one. When you borrow money, it's usually for a temporary problem or challenge. You might need to finance a new piece of equipment, for instance.
But when the company needs additional contributions of capital funds from owners, officers, or investors, it represents a more permanent challenge. If the problems that led to this necessity aren't addressed, those funds will be less effective than they should be. And you may wind up back where you started but with fewer options.
5. Key Employee Turnover
How do key employees feel about your company's decisions and actions? The employees who are aware of management decisions but also work to implement those decisions often have an important perspective on how things are going.
If you've lost important employees on a regular basis, analyze why that might be. Are employees frustrated with the company? Are they jumping ship? Are they quitting without a new place to work? Do they feel blamed when things go wrong for the business? If so, maybe your employees are telling you that the company needs a radical shift in how it operates - something you can accomplish in restructuring.
6. Increasing Interest Costs
Analyze the amount of money your business has paid over time in the form of interest, late fees, origination fees, and penalties. These expenses are side effects of missing and late payments, borrowing more money, and disorganization. So the more you're paying to compensate for ongoing financial woes, the more you should consider finding a more permanent solution.
Is your business suffering from any of these indicators? More than one? If so, start taking control by learning how Chapter 11 or even Chapter 7 can save it or protect you and your employees. Georgia businesses have relied on the legal pros at Custer, Custer & Clark LLC since 1938. Call today to make an appointment.
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