Running a small business can have its perks although it’s often an all-consuming endeavor. The owner often has to wear many hats – from being a marketer, manager, and yes, including the often most dreaded role of all – managing the finances of the business. The sad fact is that many businesses struggle, no matter how good things may look on the outside. According to the Small Business Administration, 50% of small businesses within the first 5 years.
I once had a client who owned a restaurant that I personally frequented. Every time I went there, the place looked packed and busy, and usually there was a long wait to be seated. When the owner came to see me one day about the debt problems that the business was having, I learned that the business had been in the red for more than 3 years and was simply surviving on loans to keep it going! He hadn’t paid himself a salary in years just to keep the business afloat so in essence, he had been working with no compensation and to make things worse, the business debts just kept growing. This is not uncommon, what you see is not always what you get.
Many businesses find it necessary to incur debt to finance their operations through bank loans, lines of credit and even credit cards. When servicing these debts becomes difficult based on the company’s incoming revenues, repaying becomes difficult or impossible. And as you know, cash is the lifeblood of every business. Once you are out of money, you are practically out of business.
Filing bankruptcy is the last option for business owners and quite often, usually reserved for that time when they realize that their business is no longer viable. Sometimes, this is the smartest thing to do- to cut your losses instead of throwing money into a business that has become more of a liability than an asset. Some owners come up with the wrong solutions to “fix” the problem. They think that if they spend more money on marketing, more people, etc., or if they continue to borrow money to “expand”, things will somehow get better. But this is rarely the case if the business is not profitable due to other reasons. I know this may sound simple in theory but difficult in practice: A business needs to spend less than it earns to be profitable. None of the “fixes” that owners have in mind can fix bad math.
Debt restructuring and settlement with creditors can be a good alternative to bankruptcy if it can alleviate the financial burden of the business and help the cash flow. For example, the interest rate can be reduced, the loan term extended, the payments temporarily suspended, or settlement can be made for less than the full amount of the debt. Any of the above is likely to be less costly, time-consuming, and difficult than filing bankruptcy or dealing with lawsuits filed by creditors.
Whatever the reasons are for your business’ financial struggles, if you can’t pay your creditors, it is just a matter of time before you face the risk of losing what may be the only source of income for your family. Dealing with problem business debts can be stressful especially if you have personally guaranteed the debts as the owner of the business as creditors can also sue you personally when the business default.
Be pro-active and take some time to explore your options before it’s too late. Debt restructuring and settlement is not always possible for every business but when it is, this could be what you need to save your business. Consult with a knowledgeable debt relief attorney who can review your business’ finances and cash flows and see if this may be the best solution for your business’ long-term financial well-being.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray J. Bulaon has successfully helped over 6,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE 1-866-477-7772.