Many business owners dread to hear the word bankruptcy. But it is a lot more common nowadays, thanks to the economic slowdown of COVID-19. For businesses who have to file for it, there is still a good chance to bounce back. Several big corporations filed for bankruptcy in the past, and they were able to recover pretty well. What helped them survive was making the right choices when it came to their bankruptcy options and payments.
Here are some pointers that should help out any business, whether they are large or small:
Learn More About Bankruptcy
Before taking any steps towards filing for bankruptcy, management must be aware of exactly what they would be agreeing to. There are three types of bankruptcies, and they each have a different aim. Chapter 7 bankruptcy is the word for a business since it completely sells off a business to pay off debts. This is not the approach to take when hoping for recovery.
Chapter 11 bankruptcy is the usual approach since it covers corporations and other regular corporate ownership schemes. While the business will still have to sell assets, it can get an exemption on some of them. It allows a business to keep some assets while getting rid of a lot of debt. If the business is making money, it can allow a business to continue as long as the debts are paid. Chapter 13 bankruptcy is similar to Chapter 11 but only works with sole proprietor businesses. It is still very risky but not as bad as Chapter 7.
Getting Professional Help
All the complications of bankruptcy will require some untangling. Bankruptcy law has some exemptions and strict rules to follow. A company should seek to work with an experienced business law attorney so that everything is legal and clear. It can be surprising how some companies violate bankruptcy laws and ending up losing the protections they provide. Any business that wants to financially recover from this setback needs to talk with their lawyer on the best way to legally get back into things.
Have A Payment Plan Ready
The key to bankruptcy proceedings is to pay off all the outstanding debt that the business has. If left to the court, the payment plan they decide will be very harsh and aim for maximum payment in the quickest time possible. It would be smarter to have a preferred payment plan ready before going to the court to file. With the advice of a business attorney, a ready-made payment plan might still get some push back but that is what negotiations are for. There is a very good chance that most of the payment plans would be acceptable and that is what is important.
Identify What Led to the Bankruptcy
While the bankruptcy proceedings are going on, the company should be starting to get back on its feet again. The most important step to take is to figure out what exactly caused the company’s insolvency. Losing money does not happen without a reason. Management should review its accounting and business decisions to trace what was causing the loss of funds. Identifying exactly what led to the losses allows the company to change its direction so that it won’t repeat the circumstances that led to its bankruptcy. For example, if the business lost money on unwise expansion, then the company should grow more slowly in the future.
Start Working on the Credit Score
Another part of the business recovery is the need for the business to repair its credit score. The main reason for bankruptcy is the inability to pay debts. This can negatively affect the company’s credit chances. Bad credit means that the chances of loan approval are low. Businesses need funds to expand and operate so losing access to credit is very bad. Fortunately, repairing a credit score can be as easy as paying off all the debts owed by the company. Management should ensure that the company pays everything on time and clear as many debts as possible. This will fix the credit score quickly.
Look For Funding
While still in the middle of repayment, a business still needs funding. It is a good idea to look for additional sources of capital. This can come in the form of investors. They can provide money that the company needs. Another option would be to request help from a partner who can take out a loan for the business. With the company having funds again, it can continue operations and start digging itself out of bankruptcy.
Bankruptcy does not mean the end for a business. If management does its job right, there is a good chance that the business can bounce back. Smart preparation and skilled legal help can be a big advantage for any company that hopes to recover from this setback.