There are many different situations which can lead to a business bankruptcy filing including a reduction in revenues, loss of customer base, increased competition and increased business costs. Small business owners know all too well that a slight disruption in revenues can have major ramifications if not managed carefully. Of course in some cases, a business owner is left with no choice but to seek the protection of the bankruptcy court by filing a business bankruptcy.
Business Bankruptcy Signals
The first signs of trouble for a small business typically come in the form of a “bad month” in which business expenses exceed revenues and the owner(s) are forced to contribute resources back into the business to keep things running smoothly. A “bad month” can start innocently enough with just a bad week, or a loss of just one customer. This initial disruption can seem like “no big deal,” but often times is a sign of things to come, especially when it is a distraction from new revenues.
At some point the business owner(s) have to make the decision to stop putting their own money back into a struggling business or stop borrowing from credit cards or lines of credit to float the business. This leads to the initial default in the form of one or more vendors not getting paid or debt payments not being made.
Common Efforts to Save the Business
Typically, the natural reaction of a business owner unable to meet creditor demands is to scale back on operations to cut costs. The easiest place to start is often the marketing budget. It may seem counter-intuitive but cutting the marketing budget often only accelerates the businesses demise. Marketing is typically where much of the new business comes from and without new revenue and new customers, things are highly unlikely to improve. As painful as it is, cutting staff and overhead is a much better choice.
The Downward Spiral
After the shock of having a monthly shortfall and defaulting on vendor payments, further defaults become common. Business owners typically try and keep staff on as long as possible, while simultaneously defaulting on nearly all other overhead costs, including rent. When overhead isn’t being paid, it becomes impossible to service customers and keep staff busy, this further perpetuates the problem and can lead to lawsuits and eviction.
Business Bankruptcy Solutions
Although business bankruptcy is not a solution for revenue shortfalls, it can often buy valuable time for a business owner to get a break from creditors, stall the eviction process and allow for a final opportunity to turn things around or collect on receivables. This can often be just the time a business owner needs, combined with the elimination of credit card debts and lines of credit.
Business Bankruptcy Attorneys
McFarlin LLP has represented thousands of consumers and small businesses in the business bankruptcy predicament described above. Your situation is not as unique and unusual as you may think, and there are solutions. One of our business bankruptcy attorneys can sit down with you to analyze your financial situation and discuss all the options. Call us for a free consultation throughout Los Angeles and Orange County including our newest locations in Santa Monica and Pasadena at (888) 728-0044.