For big and small businesses under increasing financial burden, bankruptcy may be the best option. Depending on the type of bankruptcy a company chooses to file, it will either shut down or restructure. Business bankruptcies are sometimes the best way to discharge business debts and protect assets. Owners should consult with an experienced South Florida business bankruptcy attorney who can assess their specific situation and objectives and advise on the bankruptcy plan that is right for them. Below are some common indicators that bankruptcy may be in a company’s future.
1. Unable to Pay Creditors
One of the most significant signs a business is headed towards bankruptcy is its inability to pay its debts. A company’s income statement will show the decreasing amount paid towards the business debts or in interest payments. If the company’s cash ratio (current assets divided by current liabilities) is below 1, then it will no longer be able to make payments to its creditors.
2. Fewer Earnings & Greater Losses
When a business slows down significantly, bankruptcy could certainly be in the company’s future. If headed for bankruptcy, a business’s earnings growth will drop rapidly, while net losses grow at an equally fast pace. A company facing such circumstances will go through saved funds quickly, leaving cash holdings to dwindle to dangerous levels. With no money to fund the business, bankruptcy will likely become an attractive alternative.
3. Top Management Changes
In larger companies, a sign of an imminent bankruptcy is changes in key management. Often, top executives are likely to leave a failing business in favor of more successful companies. Their empty positions will be taken by officers who previously had lower seniority. If there is high turn over at the top ranks of a business, that business is in danger of going under and will likely have to file for bankruptcy.
4. Employees and Perks Are Cut
A failing business will try to cut as many expenses as it can to keep its doors open. Companies that lay off large numbers of employees or make deep and sudden cuts to employee health benefits, pension plans, and other perks are probably struggling to stay afloat.
Business bankruptcies can affect multiple parties, from business owners, shareholders and creditors, to employees and customers. Those that own or lead the business have to take this fact into account when they finally decide to initiate bankruptcy proceedings.
If you are a business owner and your business is struggling with the hardships listed above, consult with an experienced South Florida business bankruptcy attorney. Call us today to discuss your company’s options and whether or not bankruptcy is the right path to take.