Business Bankruptcy Advice – Survive and Thrive: When Your Expenses Outweigh Your Income…
This is your business bankruptcy survival guide! You want your business to survive and thrive. In this article, Credit-Yogi.com will explore some of your options and give you basic advice and guidance. This will better prepare you to take prudent action, so that your business CAN survive and thrive. But please understand, this is general information. It may not exactly apply to your situation. Also, bankruptcy laws vary from state to state. For these reasons, you really should speak with an expert. And that means working with someone who knows exactly how federal and state laws apply to your specific circumstances.
Like bankruptcy, other options may allow you to remain in business and keep your home and car. Plus, they can get your business back on a sound financial footing with less hassle, lower cost, and fewer consequences than filing for bankruptcy.
Profit and Loss Tells the Story
A company depends on profits to remain in business. That means there’s enough revenue to cover salaries, fixed and variable expenses and, of course, income for you, the owner. There should even be a little extra revenue to deal with the unexpected or take advantage of an opportunity. However, when revenue drops or expenses rise, profit gets squeezed. That makes it harder to continue operating and it can undermine the viability of your business.
Simple P&L Statements May Uncover Opportunities to Avoid Bankruptcy.
Preparing monthly Profit and Loss (P&L) Statements tell a lot about how your business is really doing. In fact, a bankruptcy lawyer will require you to provide monthly P&L statements for at least the last six months. In addition, these statements need to be based on a “cash” accounting basis even if you normally use “accrual” accounting. This will allow a clear picture of your monthly cash flow to emerge. And make sure to itemize every recurring and non-recurring category of your expenses.
Your monthly P&L statement is one of your most important management tools. You need to own it and control it. If your CPA or a staff member prepares it, carefully review it every month. Over time, you will uncover irregularities and spot inconsistencies. You may even discover opportunities that could improve your bottom line and avoid filing for bankruptcy. Next, we’ll look at what some of these opportunities might be.
Realistically, there’s few things you can do to increase your business revenue in the short term. However, there are things you may be able to do that can quickly boost your positive cash flow.
10 Tactics to Survive & Thrive Through Business Bankruptcy
Tactic #1 Listen to the Experts
Credit-Yogi.com can provide you with up to 4 free question and answer sessions with business bankruptcy lawyers. There’s absolutely NO COST and NO OBLIGATION for these initial phone consultations. We’ll connect you with the experts: either a credit counselor or an American Bankruptcy Association member attorney, depending on what is more appropriate for your situation. Our service representatives are available 24/7. Why not call now to schedule your free phone consult? 1-866-964-9644
Tactic #2 Make the First Move!
- Call your suppliers, creditors, and debt collectors BEFORE they call you!
- State up front, that you intend to pay them all that you owe. Let them know that your current circumstances require you to ask for some leeway.
- Not everyone will be understanding.
- Some may be willing to work with you on a repayment plan.
- Others may even be willing to settle for less than the total amount you owe.
- Make sure you get any agreement in writing, especially when dealing with a collection agency.
Consider the Following Survive and Thrive Tactics #3, #4, and #5
#3 Talk with your Creditors or Debt Collectors
They may be agreeable to a more manageable repayment plan which allows you to make smaller repayments over a longer period.
#4 Look into Invoice Factoring
This is an arrangement in which your business sells its accounts receivable, at a discounted rate, to a Factoring Company. In doing so, your business gets an immediate, lump-sum cash payment. Even better, the Factoring company takes over all the responsibility for collecting payments from those who owe you AND bears all the risk of your customers’ defaults.
#5 Start Organizing a Collection Process
If your customers’ past due accounts are shrinking your business’s cash flow, it may be time to engage an attorney or collection agency. You might think this is a harsh thing to do to customers; but you must decide: What’s more important to you: their feelings or your business?
… bankruptcy may seem to be the only answer. Maybe it is. But more likely, other options are available to you; and you need to consider them. And, you need expert advice to survive and thrive.
Maybe You Don’t Need to Be Considering Bankruptcy After All?
Survive and Thrive Tactic #6:
Do What Only You Can Do – Expense Reduction!
No doubt, your business would be in a fantastic position if all the “variables” were totally under your control. Don’t we all wish for that? But there is a survival tactic totally within your control; and it can make all the difference in the world to your business’s survival; but only you can do it: EXPENSE REDUCTION.
Expense Reduction is an area where you can take actions that will immediately and positively impact your cash flow. Even if you believe you are already running your business at the lowest possible level of expense, there’s always more you can do to improve the bottom line. The great news is that success with this strategy is dependent solely on you. BUT it will take guts and fortitude for you to do what only you can do: make the tough decisions about who or what stays or goes.
Here’s a Proven Technique to Successfully get you Through the Expense Reduction Process.
You need to understand that, as a mere mortal, you’ll get nowhere trying to figure out which expenses to eliminate or reduce. That’s too hard to do, especially when you’re positive they’re already as low as they can go. So, let’s turn the process upside down.
Instead of trying to reduce or eliminate expenses, start with the assumption that your business has no expenses. This means no staff, no equipment, no materials, not even a physical location. (See? You’ve already eliminated 100% of your operating expenses.) Next, you will add back only those expenses that are so vital to the survival of your business that, if you eliminate any one of them, your business will quickly die. Got it?
How to Reduce Business Expenses Step by Step:
- List the products and services you must provide to your customers to be in the business you’re in. Have you compared the sales revenue on each of your product lines to your cost to carry them? Have you compared the revenue collected from your customers for each service your business provides to the total cost of the employees (wages, payroll taxes, benefits) who provide each service? This can be a most enlightening exercise. It will show you which products and services you should be offering more of — your “core” offerings — as well as what you should be eliminating.
- Identify which processes, equipment and materials are as vital to your business’s survival as air is to yours.
- Identify which positions (not the people you currently employ) absolutely and positively must be filled if your business is to provide the key products and services you identified in step 1.
- Price the cost of what you identified in steps 2 and 3. But DON’T assume the prices and salaries you are currently paying. Investigate! Can you get comparable quality materials and equipment for less cost or better quality for the same cost? Can you get the same level of productivity from a new hire for a lower wage, or more results from an existing employee at their current wage?
- Add the total costs you determined in step 5 plus the cost of your business’s mortgage, rent, and insurance. This is your “survival budget.”
Your Action Plan:
Calculate your monthly revenue, survival budget & monthly debt payments
If your Average Monthly Revenue is MORE THAN your “Survival Budget” & your Monthly Debt Payments Combined:
You DON’T need to file bankruptcy. But you DO need to sharpen your focus on the core offerings you identified in step1 of expense reduction; and reset your expenses to match your survival budget. Also, there are steps you can take to make your existing debts more manageable. Check out Credit Repair and Credit Consolidation to learn how.
If your Average Monthly Revenue is LESS THAN your “Survival Budget” & your Monthly Debt Payments Combined:
- Refocus your business strictly on the core offerings you identified in step1 and reset your expenses to match your survival budget.
- Try Credit Repair and Credit Consolidation. If they can’t get you to a positive cash flow, then…
- You may need to pursue filing Chapter 13 if you are a Sole Proprietor, or Chapter 11 if your business is a Partnership or any form of Corporation.
If your average monthly revenue is LESS THAN your survival budget (excluding your Monthly Debt Payments):
- You may need to rethink your business model. Talk to a business development coach for guidance.
- If you can reform your business model, Chapter 11 may be key to a fresh start.
- Should you decide, after careful consideration, it’s time to close shop, Chapter 7 is the way to make your exit in the least encumbered way.
If Despite Your Best Efforts, Paying Off Your Business Debts Is Impossible… Bankruptcy May Be Your Best Path to a Fresh Start!
- If your business cash flow cannot cover repayment of your loans or accounts payable; AND
- you have attempted to work with creditors and/or your suppliers and are unable to reach a settlement plan that works for both of you; AND
- fixed, non-discretionary business expenses cannot be further reduced; THEN bankruptcy may be the proper solution.
Survive and Thrive Tactic #7:
Anxiety, yes! Panic, no!
In most cases, you will not lose your home and be put out in the street!
You will not become destitute!
If you want to keep you and your business in business, you will be able to do so!
Bankruptcy Can Get You and Your Business Back on Solid Ground!
The prospect of having to file for bankruptcy is a serious matter and likely to cause anxiety and distress for most people who find themselves in this position… even more so if yours is a family business. But you need to know and take some comfort in the fact that the United States Bankruptcy Code (USBC) and the Bankruptcy Code for your state of residence, exist for the protection of debtors as well as creditors.
One Size Does NOT Fit All- Types of
The United State Bankruptcy Code provides for multiple types of bankruptcy filings to accommodate several types of debtors, their needs, and their objectives. Consequently, the Code describes each type of filing in its own chapter and refers to filings by their chapter number.
The next section is a very brief overview of Chapters 7, 11 and 13 bankruptcies, which, according to the United States Courts, account for more than 99% of the annual filings.
(Note: Chapters 12 and 13 are similar in many respects. However, Chapter 12 includes provisions and accommodations that are unique to and only available to Family Farms and Family Fishers.)
The moment you file a petition for bankruptcy with the Court, an “Automatic Stay” goes into effect which, by law, immediately stops foreclosures, repossessions, wage garnishments, and any further attempts by creditors or collection agencies to collect payment for your debt.
Bankruptcy Options for Sole Proprietors
Sole Proprietors are considered individual persons under the law. As such, the U.S. Courts require that “all individual bankruptcy filers are required to complete pre-bankruptcy credit counseling and pre-discharge debtor education.
A Sole Proprietor can choose to file under any one of the bankruptcy chapters… If you do NOT want to continue the business, Chapter 7 is the usual choice.
Chapter 7 for Businesses
The purpose of a Chapter 7 filing, also known as a “Liquidating” bankruptcy, is to have your unpayable debts cancelled, especially your non-secured (e.g., credit card) debts. However, if you have high-value property, you should also consider liquidation under Chapter 11 (see below).
You must prove to the Court that your average monthly disposable income (as defined under state law) is less than the monthly payments on your debt. If not, you CANNOT file under Chapter 7. In that case, you may be able to file under Chapter 13.
If you DO want to continue the business: You may file under Chapters 11 or 13; but Chapter 13 is usually the better choice for a small to mid-size business.
Chapter 11 is far more complex, and significantly more costly than Chapter 13, unless you can file under the Small Business Case provision.
Chapter 13 – Potential to Survive and Thrive!
The purpose of Chapter 13 is to restructure and consolidate your debts so that you can keep your business going and repay your debt over time. You keep all your property and assets, in most situations.
You must prove to the Court that your average monthly disposable income (as defined by the Court) is sufficient to pay negotiated and consolidated monthly debt repayments. If not, you cannot successfully file under Chapter 13. However, you may voluntarily sell some property to pay down enough debt so that your monthly disposable income becomes sufficient. Otherwise, you have no alternative but to file under Chapter 7.
..you may voluntarily sell some property to pay down enough debt so that your monthly disposable becomes sufficient. Otherwise, you have no alternative but to file under Chapter 7.
Also, your total unsecured debt (credit cards, loans) must not exceed $1,257,850 and secured debt (mortgage, car loans) must not exceed $419,275, Otherwise, filing must be submitted under Chapter 11.
If you would like to review a more thorough look at Chapter 13 Bankruptcy and how it works visit our Chapter 13 Bankruptcy Advice page. You should also visit this link to learn more from the U.S. Courts about Chapter 13.
Chapter 11 – Potential to Survive and Thrive
Chapter 11 is most often used to reorganize your business, its fiscal management, and its debt. However, it can also be an effective liquidation strategy.
Chapter 11 is like Chapter 13 in principle. But there are some significant differences. There are also special subdivisions of Chapter 11 that allow for a streamlined and less costly process for the Small Business Case. Special rules apply.
If you would like to review a more thorough and detailed overview of Chapter 11 Bankruptcy and how it works visit our Chapter 11 Bankruptcy Advice page. You should also visit this link to learn more from the U.S. Courts – Chapter 11.
Bankruptcy Options for Partnerships and Corporations, Including LLCs
Partnerships and corporations may NOT file under Chapter 13. However, if you are responsible for the debts of your business, you can file under Chapter 13 as an individual. Otherwise, your business files in its own name under Chapters 7 or 11.
Typically, a business entity will not file under Chapter 7 unless there is a need for transparency to avoid claims of fraud or hiding assets.
Generally, Chapter 7 and Chapter 11 operates the same regardless of the business entity filing under it. However, there is a BIG exception. Chapter 7 allows NO discharge of unpaid debt at the end of the process. Your business creditors may pursue you personally, for business debts not repaid through the liquidation of your business property.
Filing for bankruptcy can be a complex and expensive process. You should only pursue bankruptcy as a last resort when all other tactics (actions to increase cash flow and/or reduce expenses, as discussed above) are futile.
Survive and Thrive Tactic #8:
You Can Choose to Develop a Restructuring Plan on your Own Instead of Filing for Bankruptcy.
Present your profit and loss statements to your creditors and suppliers along with documentation showing that, while currently in a financial bind, by lowering payments, your business will be able to pay off the debt rather than file for bankruptcy. You will need to show them you have the future potential to repay the debt. You need to convince them that your current situation is temporary, that you will be able to pay them back, but you need their cooperation to bounce back to profitability.
Survive and Thrive Tactic #9: Remain positive.
Start developing an action plan as soon as you see things starting to go downhill. The longer you wait, the more difficult it will be to avoid filing bankruptcy.
Survive and Thrive Tactic #10: Be Kind to Yourself
You need to be at your best, now more than ever! Stuff happens, unexpected events occur. A changing economy, new government regulations, technology advancements, consumer trends, and, of course, pandemics, have caused businesses to fall on tough times. It happens in nearly 800,000 individual and business bankruptcies filed each year. The overwhelming majority of these bankruptcies are the result of factors beyond anyone’s control or events that could not be foreseen – NOT a matter of fault or failing of the filer.
Survive and Thrive Tactic #1 (it’s so important it’s worth repeating):
Get Expert Bankruptcy Advice!
If indeed, bankruptcy is your only or best course of action, the US and state bankruptcy laws are there to protect you as well as your creditors. But according to the U.S. courts it’s recommended that you hire the right counsel to get the most successful results!
Call us, TODAY, at 1-866-964-9644 to schedule your NO COST, NO OBLIGATION consultations with up to 4 American Bar Association Bankruptcy attorneys — someone who is expert in the types of bankruptcies for businesses for both the federal law as well as the bankruptcy laws that apply in your state. You owe it to yourself. You owe it to those who depend on you! Call now! Our customer service representatives are available 24/7 to schedule your free consult.