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Will Bankruptcy Help Businesses Survive COVID-19?

What is the world going to look like when we all pull ourselves through this COVID-19 pandemic? That is the million dollar question right now that no one seems to have the answer to. What we do know is that things are bound to look a lot different than what they did before. We expect that many businesses that exist today will not be able to say the same in the years to come. There have already been some high-profile bankruptcies such as that of apparel retailer J.Crew

What it Means

Some may have missed the fact that a bankruptcy can be a means for a company to pull itself back from the brink and actually survive. It is not as though this is the ideal path for any growing business of course, but sometimes this is just about the only thing that works. Certain brands find that re-inventing themselves and getting some of their creditors off their backs for a while can make a big difference. 

Most large companies that enter bankruptcy do so to restructure their debts in a way that is more manageable and more likely to get everyone paid. It can prove to be more successful than simply avoiding bankruptcy altogether in certain circumstances. In fact, some economists make the argument that the government should do more to help companies that have already declared bankruptcy than worry about helping them avoid bankruptcy outright. 

Bankruptcy has worked out in a number of cases for large companies that simply did not have the correct vision or plans for what they were meant to do or be. When they floundered, they ended up deciding that they needed to take a different route towards profits and success. They went into bankruptcy when their debts became unmanageable, but they did not declare that their mission was a failure. Instead, they were simply looking to get reorganized so as to make it easier for them to succeed going forward.

How Small Businesses Can Use It

No one anticipated the COVID-19 pandemic, and it has put a lot of businesses on the ropes. It is estimated that one in three small businesses already does not exist any longer as a result of this pandemic. This has meant that a lot of companies have had to look into the face of bankruptcy and figure out what they wanted to do. 

Small businesses need to look at bankruptcy as an option to restructure their debts and stay in business rather than close down. For example, let’s say a successful bar decides to open a second location right before the COVID pandemic hit. They borrowed the money and had their grand opening three weeks before being shut down. They can’t pay off the loan and are losing money at two locations instead of just one. They can choose to file for bankruptcy, abandon the new location and pay what they can on the debt. Without this option the business would most likely go out of business entirely. 

Not every brand emerges from bankruptcy and starts over successfully again. There are some brands that do in fact simply need to be retired, but that doesn’t mean that anyone should look at what these brands do and think of them as failures. They may not have worked out, but the bankruptcy system in this country is an amazing thing, and it exists for these types of scenarios. 

Before jumping to conclusions about why any given business is doing what they are doing, stop and think about all of the factors that likely went into their decisions, and then you can decide for yourself if you think that they made the right call.

Matt Shealy

Matt Shealy is the President of Chamber specializes in helping small businesses grow their business on the web while facilitating the connectivity between local businesses and more than 7,000 Chambers of Commerce worldwide.

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