Q: What is the best way to get out of my business? Long story short, I am a self-employed graphic designer. Business has slowed to a crawl, the bills have piled up, and my credit cards are getting ready to sue me. Please help. — Mark
A:I suppose it is not surprising that I am getting more and more questions like this every day. It used to be that small businesses were better able to handle a recession because other avenues were available to help keep things afloat — home equity, credit cards, SBA loans, etc.
Sadly, those options have mostly dried up so that now, with the economy as battered as it has been, there is not much of a small business "safety net" any longer.
If this is your unenviable plight, here are your choices:
Negotiate:With so many people and business in trouble these days, banks and other creditors are having a hard time of their own keeping their accounts up to date. This presents for the small business owner a potential opportunity.
The last thing your creditors need right now is another 90-day delinquent account, or worse, another account to sell or write-off. You are, strangely, in a power position with not a little bit of leverage.
Use it. Your ultimate leverage is the threat of bankruptcy.
Negotiate the best deal you can, whether that means a deal whereby you keep the doors open and pay more slowly or one where you close the business and agree to pay off the debts.
But the sort of business you have also matters. If you are incorporated, you are not personally liable for the business' debts unless you signed a personal guaranty. If yours is a sole proprietorship, you and the business are one in the same. You better be a darn good negotiator in that case.
Do nothing:Not a few times when I was a practicing bankruptcy attorney, I gave business owners this advice. Sometimes things are not as bad as they seem. Credit card companies, while more aggressive today, also still carefully consider whether or not to sue. The same is true for other creditors. They may wait longer than you might otherwise think. This gives you extra time to try and get things in order.
Sell it:If things are really bad, this may be unlikely, and if you are seriously considering filing bankruptcy, you have to be extra careful about selling assets before filing as that can be a deception upon your creditors. But with all of those caveats out of the way, selling business assets to pay business debts and then closing up shop is not a bad plan.
Close:Have a Going Out of Business Sale, pay off as many debts as you can, return inventory to your suppliers, and call it a day. You will live to roar another day; most entrepreneurs have a failure or two in their past.
File bankruptcy:The type of bankruptcy you may file depends upon your circumstances and desires:
Chapter 7: Also called a liquidation, this BK would be used to close the business, sell the assets, pay the creditors, and wipe out your personal unsecured debt. Remember though that Congress made this type of bankruptcy much more difficult for the average American a few years ago.
Chapter 13: This would conceivably allow you to keep the business open and come up with a repayment plan.
Chapter 11: This corporate bankruptcy would mean that your creditors would work with you to restructure your corporate debts while keeping the business open.
This is one of those times when you really need to meet with your advisers to figure out the best way to go. Getting a consultation with an accountant, business or bankruptcy lawyer will be well worth the money.
Today's tip:Tired of the bill collectors harassing you? Here's a great trick. Next time they cal at home or work, tell them that pursuant to the Fair Debt Collections Practices Act they must stop calling you. And once so warned, they must. Yes, they can sue still, and they might, but they often don't and they have to stop calling.
Ask an Expert appears Mondays. You can e-mail Steve Strauss at: email@example.com.And you can click here to see previous columns. Steven D. Strauss is a lawyer, author and speaker who specializes in small business and entrepreneurship. His latest book is The Small Business Bible. You can sign up for his free newsletter, "Small Business Success Secrets!" at his website —www.mrallbiz.com.