As a business owner, you know that the long-term success of your company depends on your ability to recognize signs of trouble and respond to them promptly. Certain warning signs should alert you when your business has entered an extremely precarious financial situation and motivate you to consider your company’s legal options. Here are three warning signs that your business may need to file for bankruptcy.
#1 – Overwhelming Debt or Cash Flow Problems
Has your business begun struggling under significant debts? This may signal that your company may need to file for bankruptcy. For example, have you noticed that your business:
- Consistently struggles to pay suppliers or make payroll
- Regularly fails to pay bills, such as rent or utilities, due to insufficient cash
- Repeatedly takes out new loans or maxes out credit cards to meet monthly expenses
Your business should have consistent cash flow to meet its monthly obligations, including servicing debt payments, paying rent/expenses, fulfilling supplier invoices, and meeting payroll. Although some months may fall short of your company’s average monthly expenses, your business should make more in other months to compensate for that shortfall. Regularly failing to meet expenses may indicate your company has cash flow problems.
#2 – Debt Collection Proceedings
Your business may face significant financial issues if creditors and other parties begin debt collection proceedings, such as:
- Making debt collection calls
- Sending debt collection letters
- Charging off debts and selling them to debt collectors
- Having assets securing loans repossessed by creditors
- Getting served with breach of contract or foreclosure lawsuits
In the event that you and your business partners have personally guaranteed your company’s debts, you may also face debt collection proceedings against your personal assets, such as tax liens, wage garnishments, repossession of your vehicles or other property, or home foreclosure proceedings.
#3 – Declining Revenue or Failing Market Viability
A sharp decline in your company’s sales/revenue or profits might also signal that your company may have significant financial troubles that could lead to bankruptcy. Loss of sales/revenue may occur when your company loses major customers or contracts without replacements. Alternatively, your business’s sales/revenue may decline over time if your business slowly becomes uncompetitive or loses market viability. Finally, a decline in company profits may occur due to an unnoticed creep in expenses, such as payroll, overhead, or debt servicing costs.
Exploring Your Options
When you decide that your company’s financial situation has become unsustainable, you may have options for resolving your business’s debts, such as filing for Chapter 7 liquidation bankruptcy or Chapter 11 restructuring bankruptcy; sole proprietorship may also file for Chapter 13 bankruptcy to repay debts over time. However, businesses may have alternatives to bankruptcy, such as negotiating with creditors to restructure debt obligations or reduce expenses.
Contact a Business Bankruptcy Attorney Today
If your business is weighed down by unsustainable amounts of debt, bankruptcy may give you the best option for resolving debts or restructuring your company. Contact The Cooney Law Offices today for a confidential consultation with our experienced attorneys to discuss whether your business should file for bankruptcy in Pennsylvania.
