Owning a business can be very challenging. Managing cost of goods sold, employees, market fluctuations and competition in the market can be overwhelming. It's not unusual for a new business to take heavy losses in their early years. However, taking a loss can happen to a business of any age, at any time. There could be several contributing factors that lead to a business' tough financial situation.
Being unprofitable can be a contributing factor of unmanageable debt. Just like with personal finances, businesses need to have a certain debt to income ratio in order to be considered to be in a healthy financial position. All it takes is a decrease in income or an increase in expenses for the debt ratio of a business to get out of whack. It can get to a position where the debt is unmanageable and detrimental to the business.
For a business to get debt relief, there are a few different measures it could take. For some business owners, Chapter 7 bankruptcy is an available option, as is Chapter 13 bankruptcy. However, these two bankruptcies are different and one could be better suited to a specific situation than the other. For this reason, it's important to choose carefully.
Since Chapter 7 requires the liquidation of all assets, this might not be attractive option for certain types of businesses or business owners. Chapter 13 is usually suited to business owners who are going to try to stick it out or because they are interested in paying back their creditors. However, you might be surprised which bankruptcy option is the best for your business. Getting financials together is the first step in determining next steps.