When is a Business Worth Saving?MJ Watson Law
A Common Dilemma
Distressed business owners frequently encounter a common dilemma: if the business is worth saving or if the business owner is better off walking away? The key consideration is whether it is possible to save the business. If the business can be saved, chapter 11 is a viable option. This process will allow the business to reorganize its debts while preserving its business assets. However, the business owner must have a goal or purpose before filing chapter 11. Chapter 11 bankruptcy cases only allow businesses to reorganize not stall creditors. Unfortunately, chapter 11 will neither solve underlying business weaknesses nor a fundamental breakdown in a business model.
A Business Plan May Help
A business owner may find it useful to develop a business plan to address weaknesses. The business plan should outline how the company will emerge from chapter 11 when the case concludes. Some of the questions to consider are whether:
- New opportunities will be available to increase revenue?
- Sufficient financing is in place to support operations?
- Key suppliers are in place ?
- High value employees are available to execute the plan?
Help! Covid-19 Shut Down My Business!
Normally, these are very difficult questions. However, the decision is even more difficult during the unprecedented Covid-19 crisis. There are government restrictions on social distancing, travel, gathering, and maintaining a safe work environment in your place of business. The Texas state government is allowing businesses to reopen gradually. However, there is no guarantee that customers will return after the restrictions are lifted. This environment makes it difficult to forecast demand. In some industries, customers may never return to pre-pandemic levels. In other industries, businesses will see a measured increase in customer activity.
Demand could take months or years to stabilize. For example, the outlook is bleak in the retail and hospitality industries. Restaurant owners cannot afford to open their restaurants at 25% capacity and remain profitable. Hotels cannot operate if conventions and summer vacation travel plans are cancelled. In these situations, chapter 11 may not be the best option especially if the business owner is carrying secured debt and/or a business lease with a personal guarantee.
Contact a Business Bankruptcy Attorney to Discuss Your Options
The decision to reorganize or press reset in chapter 7 should be taken after consulting a business bankruptcy attorney. Call M. J. Watson & Associates, P.C. for a free consultation today at 214-965-8240.