Trying to keep afloat is often challenging, especially in the early days of the company. For some, the need for working capital leads them to make credit-based purchases. Coupling these with invoices for services could mean that the company is stretched thin. If revenue dips for a prolonged period, there’s a chance that the financial situation could become dire.
When the situation doesn’t improve, the owner may have to consider filing for bankruptcy to get on top of the finances again. There might be some concern about whether the business can continue or not during and after the bankruptcy.
Important points to remember during bankruptcy
The need to file a business bankruptcy doesn’t mean that you’re a failure. Things like natural disasters, inflation, lawsuits and similar matters can have profound consequences on a small or medium-sized business.
There are two primary forms of business bankruptcy – Chapter 7 and Chapter 11. A business can’t stay open during a Chapter 7 bankruptcy because all assets are turned over to the bankruptcy trustee for liquidation to pay off debts.
A Chapter 11 bankruptcy enables a company to remain open while restructuring the company. Some debts might be forgiven and others may have extended repayment plans. All of this is done under the supervision of the court.
It’s imperative that you take action to protect your company as soon as you realize something is amiss. One option that some companies choose to utilize is filing for bankruptcy. Working with someone who’s familiar with business bankruptcy can help you to determine what options are suitable for your needs. As you’re considering these, be sure to think about how they’ll help you to move forward with the business if you want to continue to keep it open.