Deciding to file for Chapter 11 bankruptcy is a difficult but necessary step for many businesses facing financial insolvency. While Chapter 11 may give your business a chance to survive, you may wonder how much your business will change because of the bankruptcy.
Kiplinger provides some information on what happens to businesses in Chapter 11. A business that goes through this kind of bankruptcy will likely have to make many changes in order to regain its financial footing.
Downsizing a business
Many businesses in Chapter 11 face some kind of downsizing. You will probably need to close down unprofitable retail locations and scale down your work force. You may also sell off racks and shelves left over from your closing stores. Another option is to sell the inventory from closing locations. You might consider relocating the inventory to another retailer or a warehouse, but many businesses find it cost efficient to sell it where it is.
Recovery strategy
Creating a recovery strategy may be the most vital component of a Chapter 11 bankruptcy. The goal of your recovery strategy is to rebuild your business so that it can become a profitable operation again.
In the process, you must convince your investors, stockholders or anyone you need to invest in your business that your business will not make the same mistakes that placed it in dire financial straits. You may have to implement far reaching changes beyond replacing your management. You will probably have to completely restructure how you do business.
Why changes are necessary
It might be painful to implement these changes, but they could be the key to saving your business. If you emerge from bankruptcy only to conduct business as before, you run the risk of heading back to bankruptcy in a short period of time. The second time around, you may face liquidation. If you can restore your business to financial health, you may avoid this outcome.