Before considering bankruptcy, you first have to face the reality that your business is in trouble. But even when entrepreneurs recognize the symptoms, they tend to focus on the upside opportunities that will alleviate them rather than the downside of bankruptcy.
"They remain convinced that with a little more time, money or patience, it'll be fine," says Melanie Rovner Cohen, chair of the Turnaround Management Association.
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Your optimism-essential for starting your venture in the first place-is now working against your best interests. You need to get feedback from outside advisors, says Ed Schiff, the chair of the business services department for Schnader, Harrison, Seagl and Lewis LLP in Washington, DC. Ideally, that's your board of directors or kitchen cabinet. If you don't have a group that regularly advises you, turn to your accountant or attorney. Get their input before you start negotiating with creditors.
BANKRUPTCY PLANNING FOR THE SOLVENT
Even with a stable business, attorneys advise that you understand how your rights under bankruptcy impact business dealings. "People should do bankruptcy planning all along through their business life," says Melanie Rovner Cohen of the Turnaround Management Association. If your attorney doesn't have expertise in bankruptcy, ask him or her to bring in a specialist.
How beneficial is bankruptcy planning? If you're trying to get out of a lease, know that the law only lets landlords claim one year's rent in bankruptcy hearings. Worse for them, landlords' claims wait in line behind your banker's and other secured claims. Even without mentioning bankruptcy, your negotiating position will be stronger knowing their worst-case scenario.