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Signs A Business Should Consider Bankruptcy

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When should a business consider filing for bankruptcy? Making the decision to file for bankruptcy is not one that a business should take lightly, but it is also important for businesses in South Florida to know that filing for bankruptcy does not necessarily mean closing your doors. To be sure, businesses often file for Chapter 11 bankruptcy, which is a form of reorganization bankruptcy through which a company can reorganize its debts and repay creditors while remaining open. Yet sometimes, a business may not see a way to make enough money to become solvent, and a Chapter 7 liquidation bankruptcy may be necessary. Whether you are considering Chapter 11 bankruptcy or Chapter 7 bankruptcy for your business, what are some signs that your company is struggling enough with debt that bankruptcy may be the best option? The following are some common signs that could suggest you need to consider bankruptcy for your company.

Difficulty Paying Your Employees

 If you cannot pay your employees, or you are struggling to do so, your business is likely having significant financial problems that could necessitate bankruptcy.

Need for Layoffs

 When a company is experiencing financial losses and is struggling to pay its employees, it may need to institute layoffs. According to an article in U.S. News & World Report, financial losses at a company are a common reason for layoffs, especially when the business does not see a way to make up for those losses in the near future.

High Employee Turnover Rate 

A high employee turnover rate can signal problems with your business, including employee concerns about the viability of the business in the future. As the U.S. News & World Report article highlighted above emphasizes, when layoffs begin or when a business is struggling financially, employees often hear “whispers” about the company’s financial struggles and may consider quitting before being terminated. At the same time, a high turnover rate can suggest that your business is struggling to retain employees due to its culture, which may indicate that there are other, larger problems with the company’s long-term viability.

How can you determine if you have a high turnover rate? According to an article in Business.com, you will want to consider a given time period for your business and the number of employees you had at the start, the number of employees who left, and the number of employees remaining at the end of the time period.

Decrease in Sales or Service Contracts

 Businesses rely on sales of inventory or performing services for customers or clients. When you are seeing a significant decrease in sales (or a stagnancy in your inventory), or a decrease in overall customer or client contracts, the long-term and future viability of your company may be at risk.

Inability to Meet the Business’s Debt Obligations 

A business’s inability to meet its debt obligations is one of the most common signs that the business should consider bankruptcy. How do you know if you are struggling to meet the debt obligations of your company? You could be doing or experiencing any of the following:

  • Making late payments to creditors;
  • Increasingly charging business expenses on credit cards;
  • Commingling personal assets with business assets to keep the company running; and/or
  • Getting increased contact from creditors or debt collectors seeking payments.

Contact a West Palm Beach Bankruptcy Attorney 

If your business is struggling financially and you are considering bankruptcy, you should discuss the differences between Chapter 11 and Chapter 7 bankruptcy for businesses with an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton, Kaplan & Eller. A lawyer at our firm can provide you with more information about business bankruptcy, can answer your questions, and can assess your business’s current circumstances to help you determine whether bankruptcy could be the right decision.

Sources:

money.usnews.com/careers/articles/signs-youre-about-to-get-laid-off

business.com/articles/employee-turnover-rate/

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