If your small business is struggling, it may inspire some cold comfort to know that many other small businesses out there are also feeling the current economic pinch. In fact, business bankruptcies were higher in the first few months of 2023 than in any year since 2010 – and there are reliable indicators that things are only getting harder.
Even though the nation isn’t officially in a recession and consumer spending has remained steady, commercial bankruptcies rose 24% between March of 2022 and March of 2023, and Chapter 11s climbed 79%. The fact that even banks and well-known retail chains and restaurants are struggling to stay afloat is also concerning.
What’s causing the trend?
Experts say that the big problem for many businesses – of any size – is that they don’t have access to enough money to stay solvent. Liquid cash flow is necessary to do everything from paying suppliers to financing equipment, and banks are increasingly hesitant to make loans. They’re scrutinizing small businesses and credit more than ever before, and – far too often – deciding that they’re too risky.
Even when the banks are willing to loan money to a small business, those loans are increasingly costly. The prime rate that banks are charging even their most credit-worthy borrowers has risen to more than 8%, and most small businesses are going to pay more than that if they want to borrow anything. That’s a great deal more than what it cost to borrow money even a year ago.
What can you do if your business is in trouble?
The answer to this question really depends on what stage of financial distress your company is in. Generally speaking, you don’t want to simply “close shop” if you have hope of salvaging your business relationships and operating anything new.
If you’re in the early stages of a financial bind, talk to your creditors to see what sort of grace they’re willing to extend and reduce your operating costs as much as possible. That may mean reducing your operation, abandoning some pet projects or even laying off some employees. You should also reevaluate your overall business plan to see what your strongest performing products or services actually are and winnow out those that aren’t giving you a high return on your investment.
If the financial distress is more acute, it may be time to discuss your own small business bankruptcy. Seeking experienced legal guidance can help you determine if this is the best step to take.
