Question

Business Turnarounds" Please respond to the following:

• Create a scenario in which a business’s most attractive option may be to declare bankruptcy identifying the benefits and consequences of the filing. Provide a rationale with your response.
• Create a scenario in which you would sell a portion of your financially troubled business venture from a fashion boutique to a turnaround management company in hopes of getting the business back on track. Provide support for how this may be a desirable option.

Answer 1

Business Ibankruptcy Iis Ia Ifinancial Iprocess Ithat Icomes Iin Ivarious Iforms, Ieach Iwith Idifferent Iconsequences Iand Iforms Iof Iresolution. IFederal Icourts Imanage Ibusiness Ibankruptcy Iwith Ithis Ibusiness’s Isole Iproprietors Ior Iowners. IBusiness Ibankruptcy Idoes Inot Iabsolve Ithe Ifilers Iof Iall Ifinancial Iobligations.

Bankruptcy Iis Ian Ioption Iwhen Ia Idebt-laden Ibusiness Iis Ifailing, Ibut Iit’s Inot Ialways Ithe Iright Ioption. IEven Iwhen Iit Iis Ithe Ibest Ichoice, Ithere Iare Imultiple Itypes Iof Ibankruptcy Ifilings, Ieach Iwith Iadvantages Iand Idisadvantages. ISmall Ibusiness Iowners Ishould Ionly Iconsider Ibankruptcy Iif Itheir Ipersonal Iassets Iare Iat Irisk.

If Ionly Ia Ilimited-liability Ibusiness Ientity Iis Isuffering Ifinancial Itrouble, Ithe Ibest Ithing Ito Ido Iis Ijust Iclose Ithe Idoors Iand Iwalk Iaway. IThere’s Ino Ineed Ito Igo Ithrough Iany Ibankruptcy Iprocess Iif Ithe Ionly Irecourse Iis Iagainst Ithe Ibusiness.

Becoming Ia Icorporation, ILLC, Ior Iother Ilimited-liability Ientity Ican Ihelp Iprotect Itheir Ipersonal Iassets Ifrom Ibusiness Icreditors.

Businesses Ithat Ioperate Ias Isole Iproprietorships Ior Ipartnerships Iexpose Itheir Ipersonal Iassets Ito Igreater Irisks. IBut Ieven Iwhen Iyou’ve Iset Iup Ia Ilimited-liability Istructure Ifor Iyour Icompany, Iyour Ipersonal Iassets Imay Istill Ibe Iin Ijeopardy. IIt Iall Idepends Ion Ihow Iyou Irun Iyour Ibusiness.

Your Iassets Iare Iat Irisk Iif Iyou Ihaven’t Iseparated Iyour Ipersonal Iand Ibusiness Ifinances. IWhen Ithat Ihappens, Ithe Icourt Iwill Ifind Ithat Ithere Iwas Ino Iseparate Ibusiness Ientity, Idisregard Iit, Iand Iput Ithe Iowner’s Ipersonal Iassets Iat Irisk.

New Ilimited-liability Ientities Imay Ialso Ibe Iat Irisk. IUsually, Ibanks Iand Iother Icreditors Iaren’t Ieager Ito Iextend Ifinancing Ito Inew Ilimited-liability Ientities. IThey Iwon’t Ihave Isufficient Imeans Ifor Irecovering Imoney Iif Ithe Ibusiness Ifails. IAs Ia Iresult, Isignificant Iamounts Iof Icredit—startup Icapital, Icommercial Ileases, Ilines Iof Icredit, Iand Iso Ion—often Irequire Ia I“personal Iguarantee.” IThe Ibusiness Iowner Imust Iput Itheir Ipersonal Iassets Iat Istake Ito Iget Iapproved Ifor Ifinancing.

[The Ibusiness Iowner’s] Iassets Iare Ithen Ijust Ias Ivulnerable Ias Iif Ithere Iwas Ino Icorporate Ientity, IIn Imany Icases, Ithe Ifinancing Iis Ialso Isecured Iby Ipersonal Icollateral, Isuch Ias Ia Ihome.

This Itype Iof Icollateral Ican Iput Imore Ithan Iyour Ibusiness Iat Irisk. IIt’s Ibad Ienough Ito Ilose Iyour Ibusiness. IAvoid Igetting Iinto Ia Isituation Iwhere Iyour Ihome Iand Ipersonal Iassets Iare Ialso Iin Ijeopardy.

Advantages Ito IFiling Ifor IBankruptcy

The Iadvantages Iof Ifiling Ifor Ibankruptcy Iare:

• Filing Ifor Ibankruptcy Iwill Itrigger Ithe Iautomatic Istay, Ipreventing Icreditors Ifrom Itaking Iaction Ito Icollect Itheir Idebts, Iprevent Icreditors Ifrom Irepossessing Iproperty Isuch Ias Icars, Iincluding Icalling Iyou, Isuing Iyou, Ior Isending Iyou Iletters. IThis Ialso Iputs Ia Istop Ito Imany Ievictions, Iforeclosures, Iwage Igarnishments Iand Iutility Ishutoffs.
• You Imay Ibe Iable Ito Idischarge Iyour Iobligation Ito Irepay Iany Iof Iyour Idischargeable Idebts.
• By Iusing Ithe Ibankruptcy Iexemptions, Imany Idebtors Ican Igo Ithrough Ithe Ibankruptcy Iprocess Iwithout Ilosing Iany Iof Itheir Iproperty.
• While Ia Ibankruptcy Ifiling Iwill Iremain Ion Iyour Irecord Ifor I7-10 Iyears, Ibecause Imany Idebts Ican Ibe Idischarged Iin Ibankruptcy, Imany Idebtors Ibegin Iimproving Itheir Icredit Irating Iafter Ifiling Ifor Ibankruptcy.
• Without Icredit Icards, Iyou Ican Ilearn Ito Ilive Iwithin Iyour Iincome Iand Iprevent Ifuture Ifinancial Icatastrophes.
• Debtors Ideclaring Ipersonal Ibankruptcy Iare Irequired Ito Itake Icredit Icounseling. ITherefore, Iyou’ll Ihave Ieducation Ito Iguide Iyou Ias Iyou Irebuild Iyour Icredit Iand Ilearn Inew Ifinancial Ihabits.

Answer I2

4 IScenarios IWhen IYou IShould ISell IPart Iof IYour IBusiness

1. IYou're IDoing IToo IMuch

In Ithe Icourse Iof Ioperating Iyour Ibusiness, Iit Ishould Inaturally Iexpand, Iwhether Ithat Imeans Iopening Ia Inew Istore, Imoving Iinto Ia Inew Iindustry, Ior Ioffering Ia Inew Isuite Iof Iproducts Ior Iservices. IHowever, Ias Itime Igoes Iby, Iyou Imay Ifind Ithat Iyour Ibusiness Ihas Igrown Itoo Iquickly, Ior Ithat Iyou Ihave Itoo Imuch Ion Iyour Iplate Iand Iare Idistracted Ifrom Iyour Icompany's Icore Icompetencies.

This Iis Ia Iclassic Isignal Ithat Ia Ipartial Idivestiture Imight Ibe Ia Igood Idecision Ifor Iyou. ISelling Ioff Ithe Iperipheral Ior Ithe Iweakest-performing Iparts Iof Iyour Ibusiness Iwill Igive Iyou Igreater Ifreedom Ito Ifocus Ion Iwhat Iyour Icompany Idoes Ibest.

2.You'll IUse Ithe IFunds Ifor IBetter IThings

Even Iwhen Ithings Iseem Ito Ibe Igoing Iwell, Ioperating Ia Ismall Ibusiness Iis Ialways Ia Irisky Iendeavor, Iand Isometimes Iyou Imight Istruggle Ito Imake Iends Imeet. IIf Iyou Ifind Ithat Iyour Icompany Iis Iin Ineed Iof Ia Icash Iinfusion, Ia Ipartial Idivestiture Imight Ibe Ithe Iright Ichoice Ifor Iyou.

Selling Ioff Ipart Iof Iyour Ibusiness Iis Ian Ieffective Iway Ito Iincrease Iyour Icash Iflow. IIf Iyou're Ilooking Ito Idownsize Iyour Icompany, Iyou Ican Iinvest Ithat Imoney Iin Imore Iinteresting Iopportunities Ithat Ioffer Ia Ihigher Ireturn Ion Iyour Iinvestment. IYou Ican Ialso Iredirect Ithe Imoney Ifrom Ia Ipartial Idivestiture Iback Iinto Iyour Icompany Ito Ipay Ioff Idebts Iand Iinvest Iin Iyour Icore Ibusiness Icompetencies.

3. IThe ISale IMakes ISense Ifor IYour IBusiness

Stretching Iyour Iresources Itoo Ithin Iand Ineeding Ito Iraise Ifunds Iare Itwo Iextremely Icommon Ireasons Ifor Ia Ipartial Idivestiture. IHowever, Ithere Iare Ialso Ia Inumber Iof Icompany-specific Icases Iwhere Ithe Ioffer Ito Isell Iseems Ito Imake Igood Ibusiness Isense.

If Ithe Ibusiness Iyou'll Ibe Iselling Ito Ican Ioffer Iyou Ia Istrategic Ipartnership Imoving Iforward, Ia Ipartial Idivestiture Imight Ibe Ia Iwise Imove. IFor Iexample, Ithe Ibuyer Imight Ibe Iable Ito Iprovide Iyou Iaccess Ito Iraw Imaterials, Iadditional Icustomers, Ior Ispecial Iexpertise Ithat Ican Igive Iyou Ia Ileg Iup Iin Ithe Iindustry.

4. IYou INeed Ito ICut IYour ILosses

Perhaps Iyou Imade Ian Iacquisition Ithat Iisn't Idelivering Iquite Ias Iwell Ias Iyou Ihad Ihoped, Ior Iperhaps Ione Iof Iyour Idivisions Ihas Ishown Iweak Ireturns Ifor Ithe Ipast Ifew Iyears. IWhatever Ithe Icircumstances, Isometimes Iit's Imore Icost-effective Isimply Ito Isay Igoodbye Iand Isell Ioff Ithe Iunderperforming Ibusiness Iunit.

Selling Ipart Iof Iyour Ibusiness Ithat Ihas Ishown Ivolatile Ireturns Iin Ithe Ipast Imight Ialso Ibe Ia Igood Idecision Iif Iyou Iwant Ito Ireduce Ithe Irisk Ithat Iyour Icompany Ifaces Imoving Iforward. IFor Iexample, Iif Iyou Iplan Ito Iexpand Iinto Inew Ilocations Iin Ithe Iyears Iahead, Iyou Imight Iconsider Iselling Ioff Iyour Iriskier Ibusiness Iunits Iin Iorder Ito Ihave Iadditional Icash Ion Ihand Iand Ifocus Ion Ithe Iexpansion Iwithout Iworrying Iabout Ithese Irisky Iinvestments.

Benefits Iof ISelling IPart Iof IYour IBusiness

The Ifirst Ireason Ibusiness Iowners Isell Iparts Iof Itheir Icompanies Iis Ito Iincrease Icash Iflow. IDivesting Iyourself Iof Iownership Ishares Iin Ia Ibusiness Ican Icreate Icash Ibalances Ion Ieither Iyour Icompany Ior Ipersonal Iaccounts, Idepending Ion Ihow Iownership Iis Iset Iup Iand Ihow Iyou Iconduct Ithe Isale. IThat Icash Iinflux Ican Ihelp Iwith Ipersonal Idebts, Ilet Iyou Ifund Ineeds Ifor Iyour Ifamily Ior Ihelp Iyou Iinvest Icapital Iin Ibusiness Iinfrastructure.

A Isecond Ibenefit Iof Ibringing Ion Ia Ipartner Iis Ithat Iyou Ihave Isomeone Ielse Iwho Iis Iinvested Iin Ithe Ibusiness. IUnlike Istaff, Iwho Iwork Ifor Ia Ipaycheck, Ithis Iperson Iis Iinterested Iin Ithe Igrowth Iand Istability Iof Ithe Icompany. IThat Imakes Iit Ieasier Ito Itrust Ithem Iand Ileave Ibusiness Idecisions Ito Ithem Iwhen Iyou Ican't Icover Ieverything Iyourself Ior Iwant Ito Itake Isome Itime Ioff.

A Ithird Ireason Ito Itake Ion Ishareholders Ior Ipartners Iis Ito Idistribute Ithe Irisk Iamong Iother Ipeople. IIf Ithe Ibusiness Ihas Ia Idifficult Iseason Ior Idoesn't Iperform Ias Iexpected, Ithe Icash Iflow Ifrom Iselling Ishares Ihelps Ikeep Iit Iafloat Iwithout Iyou Iinvesting Iany Imore Iof Iyour Iown Imoney Iinto Iit.