Being a business owner is not easy. Decisions need to be made every day that could impact the long-term viability of the operation. Profitability is always the main objective, but it can be hard to manage a profit when employees need to be taken care of, contracts need to be honored and customers need to be satisfied. For some businesses, the finances simply get out of hand at times. When that happens, filing for Chapter 11 bankruptcy may be a good option in a bad situation.
However, there are quite a few things that a business leader should consider prior to making the decision to file for Chapter 11 bankruptcy. First and foremost, is bankruptcy necessary? A bankruptcy filing is oftentimes described as a last ditch effort to turn around a financial situation that is spiraling out of control. Have all other options been explored to see if there are ways to turn the business around without going through a bankruptcy filing?
Next, consider the pros and cons of a business bankruptcy. On the good side, yes, a business bankruptcy can lead to debt relief and a reorganization of the business structure. But, will the negative effects of the bankruptcy do too much damage with customers and vendors? A business may be able to turn some things around by filing for Chapter 11 bankruptcy, but will there still be demand for the company's products afterward?
Lastly, business owners should consider the costs associated with a Chapter 11 bankruptcy filing. It is often a complex legal matter, and businesses will usually need to ensure that there is enough cash on hand to make it all the way through to the end of the bankruptcy process. But, if they do, they may have the opportunity to once again churn out a profit.
Source: www.nfib.com, "What to Consider Before Filing for Bankruptcy," Accessed June 14, 2015