If your business is dealing with debt-related issues and you’re unable to repay what you owe, one of your options could be bankruptcy. However, bankruptcy is a significant blow to many businesses, even if it does help them move forward with more stability in the future.
Another alternative to bankruptcy that works similarly is a business workout. A business workout is essentially the same as a bankruptcy except for that you don’t file for bankruptcy. You go through many of the same negotiations and steps with your lenders and vendors as you would with a bankruptcy, but you don’t go to court.
Why is a business workout helpful?
A business workout is helpful because it works similarly to a Chapter 11 bankruptcy. It helps you restructure your debts, so that you can repay them more effectively. This is beneficial to you and to your creditors. Remember, if you go to court and seek bankruptcy, creditors may receive less compensation and, potentially, a worse deal than if they work with you directly.
How does a business workout work?
With a business workout, you implement a business plan that discusses how you’ll repay creditors over time. You may build a discount into that repayment plan, too. The goal of this is to make the creditor happy with the repayment that they’ll receive and also to settle those debts. Since this isn’t a bankruptcy, you’ll also be able to take on new debt while working out a resolution with past creditors.
Why would creditors agree to this? If the creditor knows that they’ll get at least a portion of the payment they’re owed compared to potentially nothing with a bankruptcy, then they’ll be more likely to accept the repayment schedule you suggest. They’ll also keep the option of doing business with you in the future by being lenient, which may help them earn even more in the future.
A business workout could be the solution for you. If you believe that you can work out a plan that will resolve your debts, it’s worth trying to offer that plan to your creditors to see if they will agree to it.