When small business owners meet with me, they often are so deep into their problems that they didn’t see them sooner. Sometimes, a business owner is focused on keeping the business alive that they continue to run the business at a loss for several years before realizing that some drastic financial solutions are needed. Here are the top 5 signs I have seen from small business owners. If the business owner recognizes the signs, he or she might be able to reorganize and avoid bankruptcy. And, because most small business owners, even if they are incorporated, sign and guarantee personally, they have their own credit and assets on the line. If any of these things are happening, it is best to call an experienced financial professional or bankruptcy attorney to review all of your options.
1. The business is having a hard time paying suppliers. You take deposits for jobs, but use the cash to fund the operations of the business. This is one of the first signs there are “cash flow” problems.
2. You, as the business owner, have no idea how much the business makes (gross sales) or nets (after expenses) each month. This is mainly an organizational problem, but if you can’t even make an educated guess at how much you are clearing, there are bigger problems.
3. The business is not paying its share of withholding taxes to the IRS or State taxing authority. This is a huge problem. Not only is this a cash flow problem for the business, but this debt for “941” taxes for the business is charged directly to the owners of the business. And, to make it worse, these tax deposits, also called “trust fund” taxes, are not dischargeable in bankruptcy. The IRS can later use all of its powers to levy on assets, garnish wages, and freeze bank accounts to collect that debt.
4. The company doesn’t have anything left to pay the owner(s) a salary. If you are the owner, you didn’t start the business to earn nothing. But, I’ve seen so many owners keep going for many years in the hopes of earning money. That can work if you have money saved for the venture, or if you have investors’ money to use. But, if you are using your credit cards to live on, it is going nowhere fast. You need to step back and review your business monthly income and expenses and see if there is a way to cut expenses or increase income quickly.
5. The owner(s) or the company are being sued for debts. This means that things have spiraled out of control and the business hasn’t been able to meet its expenses for a long time.
These problems can be crippling financially for a small business, and its owners. It is important that the small business owner recognizes the beginning of the problems, and contacts a financial professional or bankruptcy attorney as soon as possible.
Daniel J. Winter
Offices in Chicago, Lake County, Oak Lawn and Skokie