Your small business can avoid a bankruptcy filing. In fact, you MUST avoid a filing.
Unless your firm has an extra $100,000 in cash, it is almost impossible for a small business to survive bankruptcy. The legal fees are at a minimum $50,000 and $100,000 is normal for most Chapter 11 small business bankruptcy filings.
Since the judge will see that you cannot possibly pay the lawyer fees and other court costs, it is likely that he or she will convert your Chapter 11 small business bankruptcy into a Chapter 7 liquidation.
So our advice is to avoid bankruptcy for as long as you can. Remember that we are not attorneys, so please consult with your attorney about your specific circumstances. We base our advice on 20 years of dealing with troubled companies and what the “average” company should do.
If small business bankruptcy is a bad choice for your firm, what should you do? Our advice is to fix your firm and restructure it outside the jurisdiction of the court. In particular, you should:
Take control of your cash immediately. Do not spend an extra dime unless you have to.
Start stretching your vendors. You normally can get an extra 30 days of cash flow using this method.
Offer settlements to your nonstrategic suppliers on your overdue bills. Many times you can get a 50% discount with no damage to your credit report.
Discover your profitable areas. Cut the divisions and people working on the unprofitable units.
Create a flat organizational structure. This will usually lessen headcount by 10 to 20%
Keep the troops motivated during the turnaround. You must keep a positive attitude as well.
If you follow this advice, your firm will likely survive its current downturn. And, you will be able to avoid a filing.