The business environment has always had its ups and downs – but sometimes the “downs” get overwhelming – and bankruptcy may be your only viable way forward.
However, timing a business bankruptcy carefully can be important. When you declare bankruptcy can affect everything from the financial losses your investors experience to your future business opportunities. Here’s what to consider:
Filing early can help you preserve more assets
Filing sooner rather than later can make it easier for you to protect essential assets. If you wait until the creditors are at your door, you could be subject to aggressive collection actions that can complicate your situation and limit what assets you’re able to retain. For example, your creditors could initiate forced liquidation efforts and limit your cash flow – and that could affect your ability to recover and remain in operation (if that’s your goal).
For shareholders, investors and financial partners, an early declaration of bankruptcy can help them retain more of their investment than a reactive, emergency filing. It’s often easier to get favorable restructuring terms when you time the bankruptcy carefully, instead. Waiting too long to file can create uncertainty for your vendors and customers, too, and that can translate into a perception that your business is too unstable. A well-timed bankruptcy, on the other hand, can be seen as a proactive measure that addresses serious financial concerns in a way that actually maintains your company’s credibility.
Finally, waiting to file for bankruptcy protection can open you up to personal liability, especially if you end up taking personal loans or making personal guarantees to keep the business afloat. Timely filing can help reduce the chances that you’ll fall into a personal debt trap, as well.
If your business is struggling and bankruptcy might be in order, legal guidance can help you make an informed decision.