The 3 C's to avoid bankruptcy

    By Robert Withers | Small Business

    If you find yourself in a position where you cannot service your debt, get help immediately. Early and swift action could help you avoid bankruptcy, protect your credit, and get your business back on the right track. Meet the Three C’s of Debt Crisis Management for small businesses.

    Managing a Debt Crisis

    The United States’ largest automaker filed for bankruptcy in 2009, agreeing to stake almost 60% ownership to taxpayers. Approximately a year later, the auto giant claims to be not only on track to repay its loans, but early. The auto giant’s lender, the U.S. government, is on the road of defaulting on its own debts. At the time of this article, Congress will have six days to agree on debt limits, or else the U.S. government could lose its authority to borrow money. Should this happen, there is no telling what is in store for global financial markets, as the world’s largest economy could risk defaulting on its debts.

    If you find yourself unable to service your debt, act early. Own up to, and deal with the situation early. This is the first rule in battling through any complex financial challenge. In your favor, you do not have a Congress or powerful unions to answer to. You probably only have partners or board members to iron out the details with. You can act quickly and solve this problem. Letting the problem escalate will put you out of business.

    The Three C’s: Consult, Cut, Consolidate


    An experienced attorney is the first place to start. First, you might not even need to file for bankruptcy in order to get out of harm’s way. You have plenty of other options to consider first.

    Root Cause Analysis

    You could possibly have larger business problems other than cash flow. Determine the real reason why there is not enough cash to cover interest payments. It could be external factors like a bad market or tough competition. Or, the problem could be internal. Perhaps the industry is not a good fit for the current leadership. If freeing up cash flow through negotiation with lenders is not going to make the root cause problems disappear, then exiting is probably the best choice.

    Types of Exit

    Buyout: The purchase of distressed debt is a huge market. Many investors see it as discounted access to great turnaround opportunities. According to Dave Galanis of Pebblecreek Partners, many private equity firms have recently ramped up their distressed buyout strategy in response to the economic downturn, seeing it as a great opportunity to acquire desirable companies at a discount.

    Permanent shutdown: Experienced counsel might be able to work out a deal with lenders and arrange for liquidation of assets such as inventory, equipment, or intellectual property that raise enough funds to relieve all debts.

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