There are times in business when you know that liquidation (Chapter 7 Bankruptcy) is the only way out. However, there are other situations where a reconstruction (Chapter 11 Bankruptcy) may be an option but in reality the business is better off folding. This is certainly true in small one person businesses where the business centers around that person’s trade or skill.
By closing the business and liquidating, the owner can then sit back, analyze where their business went wrong and how they can go about re-establishing a new business. Because they have a trade or skill, they may even find that employment is a better option in the short term. This will enable them to rebuild their capital and to perhaps start on a better footing.
Tradespeople often make poor business managers. They can be very good at their trade, but when it comes to collecting on outstanding accounts, and balancing income, expenditure, and cash flows, they have no idea. By liquidating their business, they can then look at some form of training in small business management before restarting – this gives them a much better chance of success, especially if they have learned from their previous mistakes.
While saving your business may sound attractive, liquidating and starting again may be a better option. Of course, if the business really doesn’t have a future, or if it has few if any real assets and its sinking in debt, then the sooner it is liquidated, the easier it will be on the owner. Business bankruptcies can be expensive. That expense can really blow out if the business has to move from a Chapter 11 reconstruction to a Chapter 7 liquidation. Sometimes it is wiser to just cut your losses and go straight to the Chapter 7 petition for bankruptcy.
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