I’ve written blog articles about warning signs for business owners, and what to look for, when things get tough. Most business owners don’t look for signs that things are getting tough. They dig in, and keep going. Why? In reality, business owners are, at heart, entrepreneurs. What is an Entrepreneur? It is “a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so”.
Every business owner is an entrepreneur, risking everything for their business. Business owners are more than people who open stores, restaurants, or service shops. They are doctors or dentists, who start their own practices, software engineers who try to create the newest app, lawyers who start their own practices. In each situation, people get loans to get capital to build their business, and to keep it running. Cash loans can come from the US Small Business Administration, or, more commonly, from banks or online loan companies. The entrepreneur cashes retirement accounts, to create their dream business. The entrepreneur then has a vision, that the business will get off the ground and thrive. Even when it is losing money, things will turn around—they believe in their business. A lawsuit could derail the business, sales could slow, or expenses could skyrocket.
For every business that succeeds, for every Microsoft or Google, there are many failures. Failure is only the first step to success down the road. And, there’s a way for entrepreneurs to protect themselves, the U.S. Bankruptcy Code. Bankruptcy is a tool that businesses and business owners use all the time, and that is how it is designed. Look at Donald Trump. Many of his businesses have filed for bankruptcy protection. He has never been ashamed of that. He said, in the presidential debates, that he did what was legal, he was smart. Many other business owners have had to use bankruptcy laws to protect themselves.
What can bankruptcy do, you might ask, to protect a person if their business fails? Typically, small business owners, professionals trying to start a practice, and other owners have to sign personally on any loans they get. So, even if the business is started as a corporation, partnership, or LLC, the lender can pursue the owner directly. The owner has a lot on the line. I’ve protected many business owners who had no choice but to protect themselves. When I talk with a business owner, there are many more things to consider. I talk about if and when a business needs to close, and discuss the best ways to shut down. I discuss how a business might need to liquidate, or sell its assets. And, we discuss whether the lenders have any business assets as collateral. All of these things factor into an in-depth discussion of the business, and the owner’s personal finances as well, to protect the owner.
The most important thing for an Entrepreneur to realize is that it’s not bad to close a business, and it’s not bad to file for bankruptcy to protect yourself. Entrepreneurs take risks, so naturally, sometimes it doesn’t work out right. That’s why the bankruptcy laws are there. Just like starting a business, winding up a business needs a careful plan.
Entrepreneurs—contact us with questions.
Daniel J. Winter
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois