Small businesses go bankrupt. The Small Business Administration states that 50% of businesses survive past the five-year mark. This means half of the entrepreneurs that follow their dreams and start their own businesses will see their dreams go up in flames.
Business is a risk, and one late shipment or one lost contract can mean the difference between a business thriving or boarding up their windows.
There are options outside of bankruptcy that can stop a business from dissolving.
1. Direct Negotiating Outside of Court
Lenders will negotiate with a business outside of court. When negotiations take place away from the stringent requirements of the court, there are a plethora of benefits, such as:
- Avoiding court proceedings, which allows a business to save money
- Direct negotiations take far less time to complete
- A plan to get back on a financial track will be drafted, and will work for all involved parties.
The main drawback of negotiating outside of the courtroom is that it can be very difficult to get all parties to agree. The more lenders and creditors involved in the talks, the more difficult it will be to come to an agreement.
2. Assignment for the Benefit of Creditors
An assignment for the benefit of creditors is an option, and while not an optimal choice, it’s a decision many businesses face when they’re behind on bills. You can opt to go through Chapter 7 bankruptcy, or you can agree to sell assets to pay off creditors.
The state will have little oversight in the process, and there’s a lot of leeway in the liquidation of the assets.
When assets are liquidated, the business has greater control over which creditors are paid first and can relieve themselves of personal liability in many cases. Creditors prefer this method because it allows them to have greater control over the process and costs less money, too.
Every state has its own law for assignment for the benefit of creditors, so you’ll need to determine if your state offers an optimal legal foundation.
A bankruptcy attorney will be best suited to help you navigate this alternative.
3. Sell the Business Off
Businesses are often worth more than the assets they own. Companies may be in debt, but that doesn’t mean that their strong brand name doesn’t command a high value. A lot of businesses that try to expand too rapidly will fall into this trap.
You can work with a broker who will find the best option to keep your business alive under a different owner.
And you might also find that you can’t sell your business.
There are far too many variables at play to determine your business’s value and the opportunity to sell your business. Business brokers are the best connection you can make, and will help you try and find a match for your business.
You can also choose to sell just a portion of your business.
Investors who believe in your business may be willing to help you through this transformative period, allowing you to sell a portion of the business to pay off your debts.
This is a hard decision for any business to make, but it’s an option that is available and may be the only option to save your business from going under.
Businesses can also choose to work with creditors to come to an agreement to extend lending terms, go into forbearance or request lower interest rates. The creditor has it in their best interest to be paid by you in some form, instead of you defaulting and receiving little to no money in the process.
Talk to your lenders and discuss your options with them.
You might be able to avoid bankruptcy while getting your business back on track.