In business, it’s not uncommon to have bad stretches. Businesses often lose key clients or market share or face debt that cannot easily be repaid.
These down periods can lead to business collapse, or they can be an opportunity to right the ship and go on. It is important during these bad stretches to be honest about what is happening and to stay on the right side of the law.
These are some of the pitfalls we have seen with struggling companies:
Making taxes a low priority. The penalties for nonpayment or underpayment of business taxes, including payroll taxes, can swamp your business.
Spending your way through hard times. Cutting back can go against many entrepreneurs’ instincts to be bold and proactive. If there is fat in your expenditures, take a knife to it. Now is a time to implement a short-term plan to get through the current crisis. Prioritize bills that need paying. Draw up a workout plan to defer payments to vendors and suppliers.
Disguising business assets. It is a common ploy to transfer titles and ownership of the real estate and other assets. Know that you are on a tightrope leading to fraud. Resist the temptation to hide your assets.
Ignoring liability issues. If you are in a partnership or sole proprietorship, you are responsible for all business debts. Even if you are in an LLC, you may still have an element of liability, especially if you made a personal guarantee of a business loan.
Dropping insurance coverage. While it makes sense on paper, it does not make sense in practice. Ignore this temptation.
Say No to positive solutions. No one wants to sell the business they built up with their own sweat and tears. No one wants to declare bankruptcy. But these options exist because they are useful last resort to troubled businesses.
Naturally, we recommend that you stay close to legal counsel that understands all these issues, and can advise you on what’s best during this perilous period.