Filing for bankruptcy is not always an easy decision to make, especially for people in business. No one is prepared to lose a business in which they have invested significant resources like money and time. However, when your business doesn’t show any signs of surviving the challenging economic times, you might have to make a crucial decision to help you manage your debts and give you a fresh start. You must watch out for tell-tale signs that your business is going through a challenging period and might not survive. You might also need the help of a bankruptcy attorney for advice and support as you go through the legal processes.
Signs that Your Business is Headed for Bankruptcy
Everyone who starts a business hopes that the business will survive and attain its goals and more. Unfortunately, this does not always happen. Statistics show that only 10% of startups survive. It means that most new people in business are faced with deciding whether they should file for bankruptcy soon after starting. However, not everyone is willing to go through the bankruptcy process. For many, the business is a source of income and the place they have invested most of their money, personal time, and other valuable resources.
Thus, it is not unusual to find that most business people prefer to remain in financial distress than quickly decide on a plan that will remedy the situation they are going through. Filing for bankruptcy is allowed in the constitution, and anyone can seek the court’s help in obtaining financial relief if they are deep in debt. However, some business people will choose to turn a blind eye to the signs that their business is heading towards bankruptcy. You will continue trying to survive, while in the real sense, you are sinking deeper into debts.
Here are some of the signs that your business could be headed for bankruptcy.
Mild Signs
Major financial problems in a business do not occur overnight. They start with mild indicators, which, when ignored, could escalate and cause your business’ closure. Thus, it is advisable to be on the lookout to be sure that your business operations are running smoothly. If a problem is noticed, you can start looking for a remedy soon before the problem intensifies. Remember that a financial problem doesn’t necessarily mean that your business is in trouble. There are always solutions along the way which can be adopted to boost your business revenue. Here are some early signs of trouble you shouldn’t ignore as they could mean that your business is headed for bankruptcy:
Inability to Pay Vendors on Time
If your business is experiencing difficulties in paying invoices on time, it could be facing financial problems that could push it to bankruptcy soon. A business that is making enough profits will not have any problem keeping up with its invoice payments. Vendors are essential because their supplies keep you in operation year after year. It becomes a problem if you are unable to pay them on time. If you keep receiving more supplies and pushing the payment dates forward, you might be left with huge debts that could take a longer time to pay.
Thus, it is advisable to start acting as soon as you realize that your business is not generating enough income to pay its vendors.
Frequently Utilizing Credit Lines and Overdraft Protection
If your business is in financial trouble, you’ll find yourself struggling to keep it afloat. Most business people will not be quick to give up on the first signs of trouble. Thus, you might find yourself borrowing more frequently than you should in the real sense to make some crucial business payments. If you already have other long-term debts, you may result in other credit lines and overdrafts to sustain the business.
For instance, if you have been borrowing to pay salaries, utility bills, or vendors, it could be a sign that your business is headed to bankruptcy. A healthy business should, at least, make some profits to sustain its operations.
Extended Periods of Not Drawing a Salary
Your business must be a source of income for you and all those who invest their time and effort in its operation. Its revenue must be enough to pay its bills, obligations, and salaries. If you haven’t been able to draw a salary from your business for a long time now, it could be an indication that your business is not performing well and could be headed for bankruptcy.
Startups might require more time to stabilize to start generating enough revenue for salaries and bill payments. However, a business that has been in operation for years must sustain itself. If your business is no longer able to sustain itself, it could be time to rethink your strategies and make deliberate moves that could help you avoid significant financial problems in the future.
Spending Personal Funds or Savings on Your Business
If you are spending personal funds to support your business operations, it means that the business is no longer sustaining itself and could be headed for bankruptcy. A new business should only utilize the funds set aside as capital. After a few months in operation, it must start generating some income, which could be injected into the business for even better rewards.
However, this is not always a guarantee. Even older businesses start experiencing severe losses, prompting you (the owner) to use your personal funds or savings to guarantee the company’s stay on the market. When that happens, it could be time to re-strategize to avoid sinking deeper into financial problems.
Moderate Signs
Mild signs for financial trouble in business are usually not severe and so can easily be ignored. Like most business people, you might decide to hold on for a little longer, hoping that the wave of financial distress will pass on quickly, and you’ll soon be able to enjoy the fruits of your hard work. However, the mild signs are, in most cases, just the beginning. Sooner or later, you’ll start experiencing more severe signs. When this happens, it is time to make a realistic assessment of your business’s profitability. The results of that assessment will tell you how viable your business is and whether or not it is worth keeping its doors open. Here are some mild signs that could indicate a need to file for bankruptcy:
Collection Agencies Start Calling
If your business has not been making payments for its debts on time, your creditors will try every means possible to recover their money. It includes forwarding your name to collection agencies. Creditors engage the services of collection agencies when they feel that their efforts to recover money are not fruitful. Collection agencies are paid when they recover debts. Therefore, they will start calling and sending messages and threats immediately after receiving your business’ name. If you have started receiving calls or messages from collection agencies, it’s an indication that your business is not headed in the right direction. It is also an uncomfortable situation to be in, one that should cause you to act.
You Are No Longer Meeting Obligations and Deadlines
When things are running smoothly in a business, your customers will always be well served and on time. When you start experiencing problems, you’ll no longer serve your customers to satisfaction. Therefore, if your customers have started complaining of your inability to honor obligations and deadlines, it could be a sign that your business is headed for closure. Without enough resources to support your business operations, you may not meet all your client’s expectations. Soon, you’ll start losing customers to your competitors. If you still plan to keep running your business, it is best to act fast before your clients start leaving.
You No Longer Pay Essential Expenses
Expenses like rent, insurance, utilities, and bonds are usually the first to pay once a business makes a profit. If you have had to cancel these payments, and have no way to make them, do not sit back and hope things will change. It could be time to change your mindset and face reality regarding the direction your business is taking.
Also, check out how regularly your business files its tax returns. You might need to reorganize your business and see how you could manage your cash flow better.
Additionally, check how often you have managed to pay your business’s secured debts. These are debts you have acquired for the purchase of your business assets like vehicles and equipment. If you haven’t been making timely repayments, these debts become delinquent. You might have to re-strategize if you wish to repay them all.
Your Business’ Lines of Credit Have Been Revoked
Potential lenders will revoke your lines of credit if you are no longer paying the debts you owe them. For instance, banks and credit unions will no longer extend credit if your business already owes a lot of money and can no longer make timely repayments. Your business vendors might also refuse to extend credit to your business if you cannot assure them of timely payments. This puts your business at an even greater risk of closing down. It would be a mistake to obtain a secured loan using personal assets like a home or car to support your business operations.
Major Signs
The mild and moderate signs of trouble discussed above can be ignored, but when you start experiencing significant signs, you could lose your business if nothing is done soon enough. However, it is advisable to consult with an experienced bankruptcy attorney before giving up and closing your business’s doors. Again, closing the business doesn’t eliminate the debts. Seeking help on how to manage your debts should be your priority. The good news is that you can always start afresh once you have cleared all your business’ debts. Here are some warning signs that you should consider filing for bankruptcy:
Unpaid Payroll and Sales Tax
Unpaid taxes are potentially dangerous to businesses. A business must take the necessary steps to ensure that tax debts are paid before it faces severe consequences from the IRS. If your business’ taxes are past due, you could make a deal with the IRS to pay the debt in installments to avoid further penalties and criminal charges.
Filing for bankruptcy makes this possible and provides a solution for your other business debts, most of which might be past due. Therefore, seek the help and advice of a bankruptcy attorney immediately. Initiating a bankruptcy process will stop the accumulation of more penalties and give you enough time to reorganize your business to manage debts easier.
Lawsuits and Garnishments
If you already face lawsuits from your business’ creditors, it is an indication that your business is no longer sustainable, and you might have to close it soon. Some creditors are forced to seek legal help, especially if all their efforts to make you pay your debts have not been successful. These legal processes are long, tedious and costly, and could leave your business in a worse situation than it already was.
Some creditors use garnishment to recover their debts forcefully. Through garnishments, you will start losing money directly from your bank accounts.
The advantage of filing for bankruptcy is that the bankruptcy court will stop all legal processes your creditors might have initiated to recover their debts. Any efforts your creditors might be making towards debt recovery will be suspended until the determination of your case.
Repossession of Business Assets
If you acquired business assets in credit and have not been making prompt payments, you might start losing them through repossession. When assets are repossessed, you lose more in the end, including any money you have already paid and the asset you were paying for. If you are not willing to lose your business yet, it is best to take the necessary steps to safeguard your business assets.
Filing for bankruptcy is one way in which you can avoid the repossession of business assets. The court gives you a chance to reorganize your debts and develop a reasonable repayment plan. If you can show your willingness and ability to repay your debts over a specific period, you could keep your business assets. If not, the court might assign trustees to dispose of your business assets at the current market price and use the money to pay your creditors.
Foreclosure or Eviction
Losing your business premise is another significant sign that your business could be headed for bankruptcy. If you operate on a rental premise, you might start by receiving eviction notices. If you acquired your premises on credit, you could face foreclosure. The solution is to act fast before you lose everything you have worked so hard for.
Your bankruptcy attorney will prepare the necessary paperwork to ensure that your case is filed in court before too much time is lost. He/she will advise you on your best options, based on the current situation and the kind of outcome you would like to achieve. Working with an experienced attorney will make the process smooth.
Your Business’ Deposit Accounts are Closed/Overdrawn
If your business no longer has money to support its operations, it will start overdrawing its deposit accounts. This happens when withdrawals are more than deposits. Eventually, the accounts will be closed, and your business will no longer have more funds to run on. You might now start relying on draws or payments from new accounts to pay the business’ expenses. All these are additional debts that must be repaid sooner or later.
It is advisable to find a solution that will help you manage all the debts you already have and give you a fresh start to avoid falling deeper into debt. California has three types of bankruptcy Chapters that you can file for your business if you are deep into debts.
Chapter 13 and Chapter 11 allow you to reorganize your debts to make them easy to pay. These two chapters are suitable for businesses that are already making enough money to pay off their debts. They will allow you to keep operating your business as you pay off your debts. Once all the debts have been repaid, you will start managing your business’ revenue.
On the other hand, Chapter 7 is the liquidation type of bankruptcy. It is best for businesses that have no viable future. Chapter 7 involves selling off business assets to make enough money to pay off its debts.
Find a San Diego Bankruptcy Lawyer Near Me
If your business is experiencing financial troubles in San Diego, CA, it is best to make the right decision before it sinks deeper into debts. These are some of the tell-tale signs that shouldn’t be ignored. If you no longer have remaining strategies to salvage your business from its debts, contact an experienced bankruptcy attorney. At San Diego Bankruptcy Attorney, we will advise you on the right move to take and walk with you through the legal process until you achieve a good outcome of your situation. Call us at 619-488-6168 and let us help you make the bold move.
