Executives and business owners have to take responsibility for how a business performs, and sometimes they have to make very difficult decisions. The choice to file for business bankruptcy could lead to a company’s closure or to massive overhauls during the restructuring process.
Regardless of what type of business someone runs and the form of bankruptcy they intend to file, the timing of the bankruptcy filing will have a major impact on how effective the bankruptcy is. What should a business owner consider when contemplating the timing of a bankruptcy?
Impending collection efforts
Often, one of the most important considerations for the timing of a bankruptcy filing will be when lenders or other creditors will likely initiate aggressive collection efforts. A creditor filing a lawsuit or seeking to repossess business property could be a reason to initiate bankruptcy to prevent or delay such efforts with the automatic stay.
Any personal liability
Certain business models may generate liability for the owner of the company. An individual’s personal assets or possibly even their future income could be at risk if the company fails or faces aggressive collection efforts, which could be a reason to consider a preemptive bankruptcy.
The company’s future
In some cases, a business’s future success or likely lack thereof might be the reason why an executive or owner files for business bankruptcy. If people expect that the company will soon close due to insolvency or other issues, a timely bankruptcy filing can help facilitate that process. On the other hand, those hoping to help save a struggling business may need to carefully plan the timing of a bankruptcy in order to preserve as much of the company’s resources as possible.
Current operating expenses
The ability of an organization to continually cover all of its operating expenses could be an issue that leads to bankruptcy. Particularly when a business may need to restructure, looking at how much it currently costs to operate the company can help and executive or owner recognize when the right time to file may be. They may base their timeline on the projection for when the company will become insolvent or when it may run out of available credit.
Unexpected company setbacks
Perhaps there was a bad season for a certain crop that left an agricultural operation struggling. Maybe a key employee suddenly quit and opened a competing business, taking a huge number of clients with them. When a company suddenly has a major financial setback, it may go from profitable to insolvent in a number of weeks and may require assistance to get back into the black.
Discussing a company’s current circumstances and projections for its near future can help those with control over the company’s operations determine when bankruptcy might be the right choice.