There are many reasons businesses file for bankruptcy. We will address some of them here and also look at other options to avoid going out of business and shutting down operations.
1. How did I get here and is it too late to turn things around? This will depend on how bad the situation is and how long the company has been suffering. If losses have been mounting for years and you have gone into debt to keep the business alive, the best thing may be to reduce inventory as much as possible and generate cash. This can be done by carefully taking stock of how much merchandise you have, how much cash a closeout sale can generate, and how much time this cash infusion will buy. The other part of the equation is how did you get here? Because even if you can generate enough cash to get out of your current situation, if you make the same mistakes as before then you will likely find yourself in dire straights all over again. Most companies get into trouble because sales slow down, inventory builds up, and many business owners lose sight of how important it is to continue moving inventory, keeping cash flow strong, and keeping inventory low is key. Our message remains the same: if you have surplus inventory taking up warehouse space, or if you have discontinued merchandise and slow moving products, you must sell them as quickly as possible, recover some of your cost, and move onto more profitable ventures.
2. What does it take to move away from the cliff and stop the bleeding? If things look bad and you are in a situation where your business is losing money, bankruptcy is not necessarily your only way out. It is possible you can turn things around and become profitable again, but it may require hiring a company that specializes in working with small businesses experiencing financial difficulties. There may be steps you are not taking or things you are not aware you can be doing to make your business better. This will likely include getting rid of extra merchandise and liquidating inventory to generate cash flow, restructuring or possibly downsizing your warehouse or downsizing your business, closing warehouses, or other actions that will help you to stop losing money. But the good news is that you may have other options than shutting down your operation and liquidating everything.
3. If I have to file for bankruptcy what steps should I take? If it turns out your only viable option is to file for bankruptcy, you will have to decide whether to file for Chapter 11, Chapter 7 or Chapter 13. These are all different types of bankruptcy protection and each has different restrictions on how property is liquidated.
What are the different forms of bankruptcy? Chapter 11, Chapter 13 and Chapter 7.
Chapter 11: Under Chapter 11 bankruptcy a company undergoes a reorganization of it’s assets and debt in an effort to regain profitability. The business continues to operate while going through restructuring.
Chapter 13: Under Chapter 13 bankruptcy you are allowed to keep all of your property, but at the same time it is determined by your property. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.
Chapter 7: Under Chapter 7 bankruptcy almost all of your assets and property are liquidated and become property of the bankruptcy estate that is sold to allow you to repay your debts. During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors. Just because your assets are being sold, that does not mean that all of your property needs to be sold.
5. Can I get rid of excess inventory before filing for bankruptcy protection?
It is possible you can work you inventory down before filing. This would require offering deals on inventory or reducing prices to get rid of surplus merchandise and any other unsold inventory.. Any inventory left in the warehouse at the end will be included in the bankruptcy sale and will be controlled by the bankruptcy court. They may choose to liquidate merchandise in small lots or sell everything at one time to get rid of it. But the end goal is to reduce inventory, sell merchandise for cash, and liquidate.what has not sold.