How to Avoid Bankruptcy in 2022-23

No business owner sets out to eventually send his or her company into bankruptcy. But over time it may seem inevitable. There are many ways Chapter 11 can still be avoided—and good reasons to pursue them. If unavoidable, there are important steps to take to ensure a filing doesn’t make matters even worse.

Economic news of late makes this topic timelier now than during the height of COVID-19 two years ago, when we first talked about it. Back then, government stimulus placed the economy on economic life support longer than any of us anticipated. That support is now gone, and the threats to your business are more varied and growing in intensity each week.

lighthouse photoThis Thursday, the Commerce Department reported a second consecutive drop in U.S. gross domestic product during the second quarter of 2022, making it official—we are now in, or at the precipice of a recession. Wednesday, the Federal Reserve raised its federal-funds rate by 0.75 percent point, to a range between 2.25 percent and 2.5 percent, continuing a historically rapid rate of rate escalation to try to curtail soaring inflation. Prices are at 40-year highs. Throughout the week, several businesses from GM and Walmart to Facebook and Microsoft reported weakening financial outlooks.

These developments add to ongoing labor and supply shortages, shipping challenges, the global economic disruption caused by the war in Ukraine and other factors making it even more challenging to forecast how a business will perform the remainder of this year, and in 2023.

If your business is struggling, take a few minutes to listen to our panel of three experts discuss some of the best ways to proceed to avoid bankruptcy and do it the right way. They also offer tips for businesses that are doing well today, so they don’t end up needing to talk about bankruptcy in the future.

A few of the many key takeaways include:

  1. Create a rolling 13-week cash flow analysis and update it weekly—even if your company is doing well today.
  2. Do a quarterly liquidation analysis to understand what you would walk away from, and with, should an orderly liquidation need to occur.
  3. Ensure the decisions you’re making take into account issues facing the world right now. If nothing else, look at your books to see where you can be better—it may identify a red flag or two you weren’t aware of.
  4. If you feel any financial tightening, sit down and make sure you understand your business and how its goals fit with the changing times. Even if you did this six months ago, things have changed.
  5. If your business is experiencing financial pressures or anticipating problems ahead, bring in an outside expert who has helped other businesses with situations such as yours. It will help your internal review and give credibility to what you tell the outside world.
  6. If in need of a financial turnaround or bankruptcy filing, develop a new business plan that’s honest about what’s working and what has to change.
  7. Be transparent with creditors, vendors and employees in that order.

Our panelists are:

Pat Brennan, a partner at Platinum Group and a seasoned business executive with a strong track record of success working in a diversity of environments, including distribution, manufacturing, service and banking. He leads financial restructurings and excels in rapidly transitioning environments where cash insufficiency is the key issue that must be overcome.

Cameron Lallier, a partner in the Minneapolis office of Foley & Mansfield. Cam practices in the firm’s Banking & Finance and Creditor’s Rights groups and represents banks and other financial institutions in matters involving Chapter 7 and 11 bankruptcies, and the enforcement of security interests.

Thomas Lallier, a partner in the Minneapolis office of Foley & Mansfield. Tom has more than 25 years of experience working nationwide in the insolvency arena representing asset-based lenders, equipment and real property lessors, commercial debtors, consignment vendors and creditor committees in Chapter 11 cases, and workouts. He also represents buyers and sellers of companies in merger and acquisitions in many industries, including banks, manufacturing, retail, real estate companies, the industrial industries and technology companies.

The discussion is moderated by Dale Kurschner, also with Platinum Group.

This panel discussion on “How to Avoid Bankruptcy” can be watched here on YouTube, or listened to here via Spotify.

Video Segments:

02:15  What are one or two of the top things people should do, or don’t do, when it comes to a situation where they think they’re going to have to file for bankruptcy?

04:00  Is it as easy as it can sound; file for bankruptcy and then deal with creditors and the aftermath from there, or are there things to think about first?

08:46  Why filing isn’t like just flipping a switch.

10:19  How do you broach the subject with your creditors and others?

12:19  In what sequence do you talk to whom about trying to either do a financial workout/turnaround, or in preplanning for a bankruptcy filing; creditors, most important clients, key employees...?

14:06  What are some key steps to take to turn around a business and avoid having to file for bankruptcy protection?

17:48  It sometimes seems like an owner waits too long before addressing this. What should they think about today to help them realize they need to talk with someone sooner than they’re aware or willing to?

21:43  What are things people can look at in terms of finding ways to stay alive financially? Asset backed lending, factoring, working out relationships with vendors where they can help...?

27:56  More regarding what business owners can do to stay alive financially without having to file.

31:41 How do you let your creditors, vendors, employees and others know you’re in a stressed financial situation needing either a financial turnaround or a bankruptcy filing without creating a false sense of alarm or panic?

34:32 Closing comments