Business bankruptcy filings are trending upward. U.S. Bankruptcy Court statistics show a 5.6 percent increase year-over-year, driven by higher interest rates, inflation, and debt taken on during the pandemic.
Financial struggles can distract from day-to-day operations and mean missed growth opportunities. An experienced business attorney can help develop a strategy to avoid bankruptcy, including by negotiating terms with suppliers and restructuring. Taking action early is key to surviving a financial rut and restructuring as a leaner, more resilient company.
Start Now: 7 Steps to Save Your Business
Don’t spend time looking back at the things you might have done differently. If your business is floundering, start taking action today to revitalize it. Here are some practical steps:
- Don’t Ignore Warning Signs
Catching financial trouble before it becomes irreversible is critical. If your cash flow is consistently negative or declining, if meeting payroll is getting harder, if using credit cards is the only way to cover operating expenses, and if supplier relationships are being tested by late payments, it’s time to take action. Keep reviewing weekly cash flow reports to grasp the severity of the issue.
- Audit for Actionable Data
A thorough review of all outstanding debt, receivables, cash flow projections, and balance sheets should provide a clear picture of the business’s true condition. Poor bookkeeping is often cited as contributing to business failure. Next, hire a CPA to clean up financial records so they are clear and accurate when negotiating with lenders and creditors.
- Communicate with Creditors
Proactively discussing the situation with creditors is preferred over surprising them with a bankruptcy notice. Most creditors would rather renegotiate terms of loans and payments through lower interest rates, refinancing, extending payment deadlines, or consolidating debts than the legal and staff costs of creditor’s committee meetings in bankruptcy court.
- Look to Alternative Financing and SBA Loans
There are several Small Business Administration loans designed to aid struggling businesses, such as the 7(a), 504, and microloans. Refinancing through an SBA loan may reduce monthly obligations enough to relieve the financial pressure. There’s also a nonprofit in the Milwaukee area, SCORE, that offers free mentoring by volunteers for developing recovery plans.
- Reduce Costs and Diversify Revenue Sources
Look for immediate changes that can release financial pressure, such as underused office space and redundant vendor contracts. Can technology help to streamline processes and reduce overhead? If possible, diversify revenue by adding a complementary service line, pursuing new customer segments, or entering strategic partnerships to reduce reliance on a single product that is lagging.
- Consider Wisconsin’s Chapter 128 Option
A powerful debt relief tool available only to qualifying Wisconsin businesses is the Chapter 128 option, which is faster and avoids the taint of bankruptcy. It allows consolidation of unsecured debt into a single monthly payment for 36 months under court supervision. This allows businesses to make progress paying down the principal without accruing additional late fees or interest.
- Get Professional Help
Don’t wait to consult with debt reduction experts, including an attorney, an accountant, and a banker. Professionals with experience in restructuring can identify potential solutions that aren’t obvious to the business owner, such as asset-based financing, equity infusions, merger opportunities, and out-of-court debt settlements. Also consider Subchapter V of Chapter 11 bankruptcy, the streamlined reorganization process designed for small business.
Failure to Plan is a Plan for Failure
Nobody goes into business planning to go bankrupt, but if you don’t have the data and foresight to recognize when the business is failing, bankruptcy may be the only option. An experienced business attorney from Kerkman and Dunn can step in and advise on alternatives, helping to reset your business on solid financial footing. Call for a consultation today.
