Consumer behavior can be difficult to predict. Factors ranging from viral social media stories to popular trends influence where people want to eat while out on a date or where they choose to stay while on vacation or business trips. Businesses operating in the hospitality sector have to ensure that their pricing is competitive. They need to invest in proper branding and marketing to attract the right consumers.
Sometimes, despite the best efforts of the leadership within the organization, hotels, restaurants and other hospitality sector businesses may end up struggling. A downturn in overall consumer spending, shifts in current trends and prior rapid expansion are all scenarios that could put hotels, restaurants and similar businesses in a difficult financial position.
Being open and available to the public requires a physical footprint and adequate staffing. When there aren’t enough customers ordering meals or booking rooms, the company could quickly become insolvent. At that point, leadership within the organization may need to make difficult choices. A Chapter 11 bankruptcy can be a viable means of protecting a struggling hospitality-based business.
Restructuring could save the business
A Chapter 11 bankruptcy involves a thorough review of the company’s resources and finances followed by a plan to restructure the company and make it solvent again. Looking at sales trends can help the company identify underperforming locations. The organization may be able to identify ways to reduce operating costs while preserving its most profitable locations.
The company can put together a reorganization plan that representatives from its creditors must vote to approve. It may then be possible to close the least profitable locations, eliminating some of the organization’s overhead.
Ending commercial leases, terminating employment contracts and liquidating equipment can all help reduce the pressure on the organization’s budget. At the same time, the company can reinvest in the facilities that consistently generate profit.
By reducing operating costs and allowing for a company to evaluate what currently works and what does not, Chapter 11 bankruptcy can help protect struggling businesses from failure. Particularly in scenarios where creditor actions could result in the loss of assets or other challenges for a company, a timely Chapter 11 filing could make a major difference.
