With the technology advancing as fast as it is today, startups are popping up in every nook, cranny, and niche of the market place. Starting these infant businesses are undoubtedly both exciting and fun, but they come with immense risk with The Wall Street Journal stating nearly 3 out of 4 new startups failing in 2012. While 3 out of 4 may sound terrifying to all new ambitious college students, there are many financial tactics that can be taken to prevent such failure. One in particular that tends to befuddle the public is filing chapter 11 bankruptcy.
Chapter 11 bankruptcy is typically labeled as a “reorganization” bankruptcy, and with it a business is able to reorganize both its business plan and its debts to repay the companies creditors. Furthermore, according to Bradford Law Offices, PLLC, companies that file for chapter 11 also have a higher possibility of obtaining loans at more favorable rates to help refinance debts. Perhaps the most significant aspect of chapter 11 however, is the ability to continue to operate business throughout the entire process. This gives CEO’s and company founders an honest chance to save the company that they helped create, and stopping business for any amount of time can prove detrimental for any growing startup.
While typically corporate behemoths file for chapter 11 bankruptcy, small businesses receive special attention when applying and can be a useful tool to continue normal operations. Small businesses do undergo a slightly different form of chapter 11 as they receive more government oversight and must provide additional financial information such as cash flows, projected cash receipts, and must also attend an initial interview with the U.S. trustee before a chapter 11 bankruptcy can be granted. Filing for bankruptcy is never an ideal situation for any company, but for startup founders that truly believe that their project can succeed filing for chapter 11 bankruptcy could be the last lifeline they need before creating something Awesome.