A temporary hardship at a business could theoretically spiral out of control and impact the company’s long-term prospects. Business owners and executives trying to correct challenging financial circumstances may eventually determine that a bankruptcy filing is the best possible solution.
A Chapter 11 bankruptcy allows for the reorganization of the company. The business receives an automatic stay to prevent continued collection efforts while company leadership acts to make the company profitable again. Yet, drastic changes are often necessary during Chapter 11 bankruptcy if a company wants to return to profitability. What adjustments are often necessary?
1. Closing unprofitable locations
Rapid expansion due to prior success can be the source of a business’s financial woes. A thorough review of the performance of each independent facility may be necessary to determine which locations are profitable enough to keep open and which ones cannot sustain themselves.
2. Reductions in workforce
Layoffs are frequently a component of a Chapter 11 bankruptcy. The company may not currently have the necessary revenue to pay wages to all of its workers and cover the cost of benefits. Careful attention to detail is typically necessary to avoid allegations of wrongful termination when downsizing in a Chapter 11 scenario.
3. Asset liquidation
When reducing the overall workforce and closing unprofitable locations, business leaders have an opportunity to liquidate redundant assets. Selling off vehicles, equipment and even real property can reduce operating expenses related to insurance, taxes and asset management. Additionally, the revenue generated can help pay down debts.
Having support from the earliest stages of a Chapter 11 bankruptcy case may make it easier for leaders to avoid common pitfalls and pave the way for a successful restructuring. The elimination of redundant and unnecessary expenses can make it easier for a company to regain financial equilibrium.