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Small Business Bankruptcy Rises in California

May 9, 2006

According to the American Bankruptcy Institute, 13% more bankruptcies were filed in 2005 than in 2004 in California. The dramatic rise in the numbers of bankruptcy cases in California comes after a three year decline in bankruptcy declarations. While this can be a troublesome scenario, many business owners may have the solution to their problem right in front of them. According to the study, most businesses either failed or had to declare bankruptcy for very preventable problems.

One of the most common problems that California businesses was staying focused and maintaining and growing only within that focus. Straying and attempting to find new avenues of revenue makes the business more spread out and less effective overall, particularly if the initial intent of the business has not been realized yet. Another common mistake that businesses make early on that can lead to bankruptcy is not making changes when a consultant or employee suggests it. Changing a small business is part of the process and that change must happen in order to prevent stagnation or ultimately failure.

A main problem of California businesses that declare bankruptcy is that they had an unclear or even non existent cash flow plan. While this may seem obvious to do from the beginning, many small businesses fail to incorporate cash flow predictions based on various possible scenarios of what may happen in the business. When one or more of these possibilities materialize, the small business' cash flow is drastically reduced, or stops altogether, producing a negative cash flow situation, and necessitating filing bankruptcy. Spending time on a cash flow system that works, is flexible, and is often updated and looked at can help a small business avoid bankruptcy.

For many small businesses bankruptcy can be a positive element in the life of the business, because bankruptcy can analyze and solve problems, such as unprofitable leases, contracts where more is owed than the value of the collateral securing the loan, etc. But bankruptcy can only have a positive effect with a clear cut plan of how the business will reorganize under Chapter 11 protection. In addition, the business must change during bankruptcy if it is to survive and grow. The possibility of avoiding bankruptcy can be real for a small California business if efforts are taken soon enough to address problems.

A professional and experienced law firm can help small California businesses avoid bankruptcy as well, by being retained to try to negotiate settlements of large debts of the business, as an alternative to the business filing bankruptcy. The Bankruptcy Law Firm can be retained to try to settle large debts of small business, by explaining to the creditors that the business will file bankruptcy unless a reasonable settlement is reached short of bankruptcy, and has been successful in negotiating settlements out of bankruptcy of large business debts as an alternative to the business filing bankruptcy.

The Bankruptcy Law Firm, PC represents individual and small business debtors in filing bankruptcy in each of the following counties which comprise the central district of California bankruptcy court: Counties of Los Angeles, Orange, Ventura, San Bernardino, Riverside, Santa Barbara, and San Luis Obispo (South ½). Contact us AT 310-559-9224 or by emailing to: KMARCH@BKYLAWFIRM.COM for a free first consult. We look forward to helping you.

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