Your client’s business is going under.
What should I do? he asks of you.
Return the favor with a question of your own, the third in my trio of gating inquiries:
Would the business outlook be better if you weren’t servicing debt from the past?
Fight or flee
Before you can craft a plan, you need to assess the underlying problem in the business.
There is no bankruptcy remedy for a poor product, an overcrowded market, or a bad match between the owner’s skill set and that required to make a success of the business.
But if cash flow problems can be traced to paying for past mistakes or even for start up costs that are behind you, there may be a business to rescue here.
Make a budget
Like it is said at https://instantinfosystems.com, communication is key. Ask the client to make a budget (or to project operating expenses, if “budget” comes with too many negative connotations) for operations next month. The budget should provide for no payments for purchases, loans, credit or credit cards in the past. Just, what does it cost to run the business going forward.
Look for leases for either equipment no longer appropriate or premises that are too expensive. If you can exclude those items, or reduce their cost, does the business seem viable?
The will to go on
The interview with the business owner who tells you he’s ready to throw in the towel has to assess whether that readiness to quit is the product of not knowing that there are options, or whether it is the response of a genuinely spent individual.
Business reorganization, whether through the bankruptcy of the entity or of the shareholder, takes energy. Still more energy is required to run the surviving enterprise.
Options available
Your recommendations to your client depend on the assemblage of the answers to the three questions I proposed when we started this discussion:
- does the business have its own legal identity?
- if the business is operated by an entity, is the entity really liable for the debt it’s servicing?
- would the business outlook be different if it didn’t pay debt from the past?
Are there fundamental questions you’d add to my list for a client with a struggling business?
Image courtesy Wikimedia.
Thanks so much for this series of articles, Cathy.
I had a potential client come in a couple months ago with a struggling business. Being a fairly new practitioner, I realized quickly into our initial meeting that I didn’t even have a framework by which to evaluate his situation. I felt I had no choice but to refer him out to a more experienced attorney.
The way you broke down this situation into its component parts makes the analysis required seem manageable. And I particularly appreciated the savvy practical advice in the last article about calling the creditor as a representative of the business to figure out whose name is really on the account. I’m still not sure I could handle a somewhat complicated business case without mentorship, but at least I wouldn’t feel lost in evaluating the major issues.
I’m glad it is useful. I find adding a sense about business issues vastly increases the pool of people you can help. And often, by getting them to break down who is really liable and what the business’ s problem is, you can save some of them.