by A. Thomas DeWoskin
Even if your business has been doing fairly well in spite of COVID-19 and the many other factors affecting our economy, you may still be concerned about current or future events that could adversely affect your company.
If your business is struggling due to a specific event but is otherwise profitable, you may be able to work your way out of the situation.
If you purchase equipment that fails to work as needed or takes longer than promised to get up and running smoothly, you may have to pay employees overtime to fulfill your orders and personally take a pay cut.
In this situation, if you have a history of transparency with your bank and other creditors as well as a good reputation in the industry for always operating with integrity, you may pull through. The reservoir of good will and trust that you’ve built, along with your own pay cut, may convince creditors and vendors to work with you (perhaps, with more restrictive credit terms). You and your attorney may be able to reorganize your business without resorting to the courts.
Customer Files for Bankruptcy
If a large customer files for bankruptcy, take steps sooner rather than later, including making a reclamation claim if possible.
- If you receive notice of a bankruptcy filing, your first move should be to call your lawyer. If you’re deemed a “critical vendor,” you may be able to get paid for unpaid invoices issued for deliveries before the bankruptcy filing.
- If your customer stays in business, do they want to continue working with you? Do you want to continue selling to them? Try to negotiate better terms, e.g., cash on delivery (COD), no discounts, or collateral in exchange for credit.
- If you receive a demand for the return of a preferential transfer, don’t just pay it and don’t just ignore it. Call your lawyer to discuss the various defenses available to you.
Long-term Systemic Issues, Including COVID-19
If you’re having long-term, systemic issues, there are actions you can take to improve your situation.
- Cash is king. You will need cash to stay open while you make changes.
- Look for inefficiencies or ways to reduce costs.
- Avoid overstaffing and be sure your staff is good at their jobs.
- Consider changing your business model.
o Update your product line or methods.
o Refocus your business and use your expertise to meet current customer demands.
o Check out what your competitors are doing.
o Increase your web presence. Most items can be bought and sold online.
- Talk to your employees to uncover weaknesses in the business and create a loyal staff that feels respected.
- Consider hiring a consultant to determine the true cost to produce each item you sell. Drop unprofitable items and increase prices.
It’s easy to become paralyzed by the rush of things going on during financial distress, but all is not lost. There are many things to consider as you respond to your unique situation, whether the problem is due to a single event, a customer’s crisis, or systemic (or external) long-term problems.
A. Thomas DeWoskin, bankruptcy attorney with Danna McKitrick, P.C., practices in the areas of bankruptcy, creditors’ rights, and commercial law. He represents creditors as well as business debtors, and individuals with difficult or unusual financial situations. DeWoskin served as a bankruptcy trustee in the Eastern District of Missouri for more than 35 years. He can be reached at 314.889.7128 or firstname.lastname@example.org.