With the economy in the tank, the government keeps bailing out the banks, but doing little to help small businesses. Recently, the Federal Reserve announced that they were going to monetize the debt to the tune of $900 billion to be paid in early 2011. When the government freely uses the word "monetize" in other words, print more money. In 2008 there was $800 billion US dollars in circulation. Now, with the latest "monetizing" the current administration has bumped it up to over $3 trillion US dollars. Using history as a benchmark, all this will do is create hyperinflation. In 2005, there was 20,000 business bankruptcies. Continuing on to 2010, there is expected to be 60,000 businesses that had to file bankruptcy. That trend continues to rise, and doesn't look like it will get better if hyperinflation is added to the recipe. Many businesses have decided to just shut down instead of filing Chapter 11 bankruptcy because it doesn't look like it's getting better in the near future. In many situations that might not be the best decision. Big corporations usually have large sums of money invested in their inventory, employees and property. That's not even considering the goodwill they have developed with their customer base over the years. When a business just shuts the doors they will have to be responsible to pay the investors, employees and suppliers. That's why filing bankruptcy is almost necessary for a business if they plan on closing.
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Not having sufficient capital to fund a business in a financial storm can take a business down. Recessions that last for years can be devastating to businesses that are underfunded or have large amounts of debt. When the economy is expanding, small businesses grow too quickly, causing them to lack enough finances to stock up on inventory. Developing a good business plan is important to help the business grow when the economy is strong. A large number of first-year businesses end up filing for bankruptcy because of poor management skills that end up causing a high debt ratio. The reasons for businesses failing can vary, but companies that want to continue on should consider some form of bankruptcy filing.
Turn on the evening news and you will see that filing bankruptcy has become commonplace for many corporations in the US. When a business incurs more debt than they can pay, banks and investors can call the note due. When corporations get pushed into this situation, usually bankruptcy is the solution. Most businesses that want to continue operating will file a Chapter 11 bankruptcy. Their financial situation is so bad that there is no way to recover, they will file a Chapter 7 bankruptcy and close the doors. Businesses have really been feeling the pinch of this continuing recession. Consumers continue to spend less making it tough for businesses to survive.
When a business files for Chapter 11 bankruptcy, creditors and even shareholders that have a large amount of stock, maybe involved in the day-to-day operations of the business to protect their investment. Many times a bankruptcy court will ask for new management to increase the chance that the business will recover and make sure the debts will eventually be paid. If a business owner doesn't want to lose control of their operation, they should look for an alternative to filing for bankruptcy. Other options could include selling parts of the business to get cash, reduce labor costs, negotiating with creditors and vendors to work out paying off the debt on your own. There are many factors when considering a bankruptcy filing for your business. It's important to consult with a bankruptcy attorney who has experience in your sector of work. Many times filing bankruptcy is the best solution to protect the assets you have left. There is the old expression, stop throwing more good money at the bad.
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