Businesses file for Chapter 11 bankruptcy all the time, but the majority of these businesses are so small or regional that you’ll never hear about them or consider the consequences.
What happens, though, when a household name like Friendly’s, Sur La Table, or Hertz files for Chapter 11 bankruptcy? Many people are loyal to these companies, and it’s hard to imagine them going out of business, but Chapter 11 bankruptcy isn’t necessarily the end of the line.
Bigger businesses typically file for bankruptcy to find a way forward, reorganizing their debts rather than closing their doors entirely, and you can too if you approach the process wisely.
Take a cue from these two well-known businesses and discover what’s possible.
Sell Off The Extras
One of the primary goals of Chapter 11 bankruptcy is to pay down debt so that the amount owed is less burdensome. Then the business can move forward. This is obviously easier to do for larger businesses than for very small ones.
In the case of the famous restaurant and ice cream company Friendly’s, for example, this took the form of selling off assets while keeping their restaurants open. The company didn’t have a lot of assets – estimated between $1 million and $10 million compared to their $50 million to $100 million in liabilities – but even a small reduction in debt can make a big difference.
How does this approach to bankruptcy apply to smaller businesses? As bankruptcy attorney Rowdy Williams explains, “Even small businesses have assets they can sell off, at least if they’re willing to reduce certain services and simplify, and while you may be reticent to do so, there are benefits to this strategy. Once you enter into the reorganization process, your debts are put on hold and this is the first step towards organizing your funds to get out of debt.” All this is to say that, as suboptimal as selling off valuable possessions may seem, when you’re facing bankruptcy, it may be the best choice you have.
The E-Commerce Advantage
There are lots of businesses that can only operate in person, in brick and mortar settings, but there are many others that, despite a preference for in-person efforts, have had to embrace the flexibility of e-commerce to succeed.
This is exactly the case with Sur La Table, the beloved kitchen supply store. When Sur La Table filed for Chapter 11 bankruptcy, the business worked to shake up its distribution practices while cutting expensive overhead.
So, what makes Sur La Table a smart model for small businesses? New technology has made it easier than ever for the company to stop using traditional warehouses and source shipments directly from stores, an option more small businesses might be able to use if they increase the delivery frequency but reduce in-house stocking. Additionally, expanded e-commerce business could increase profits for otherwise local operations.
The Art Of Reorganization
When businesses file for Chapter 11 bankruptcy, their core goal is to reorganize their operations in order to reflect the hope for a fresh start. That’s not always easy, and the process has to be overseen by the courts and approved by your debtors.
Still, reorganization represents opportunity and new beginnings so that even when it demands compromise, what you lose will almost certainly make up for what you gain.
