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Alain Bojarski posted a new Financing A Business thread on 2/14/2011

What are the things to consider for a small business owner to decide between going into a debt management program or filing for bankruptcy?

I am SCORE counselor in Mass.

One of our clients owns a salon (nails, skin care,...) as a sole propr. The annual revenue of the business is around $55k.
Now, it generates enough margin to cover the business expenses and the living expenses of the business owner, but not enough to pay back the $52k debt accumulated in the past ($41k on several credit cards, $11k on a line of credit with a bank).
The business owner stopped paying the credit cards a few months ago.
She consulted a debt management company which developed a preliminary financial plan, which would put a strong pressure to reduce her already low personal expenses for several years.
She also consulted with an attorney who advised her to file for bankruptcy under Chapter 11 and asked for an initial $1,700 deposit. The attorney told her that the business owner will be able to keep her business, even after she files for bankruptcy.

Any input on how to analyze the situation and make the most appropriate recommendation is welcome.

Thanks.
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Jack Cox Responded on 2/14/2011


Not knowing the whole story, from your presentation, it appears that the signs and symptoms are being treated, but not the cause. Like I said I do not know the background in this, but in this case, I would look at the business practices they are currently doing. What is the cause of loss? What is their marketing strategy? Do they want to save the business or walk away? If you want to go off line in this discussion we can discuss this further. drjcox@verizon.net
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