Bankruptcy is Costly for Struggling Small Businesses

Many small businesses have closed across the country in the last few years alone, and the reasons why that happens can vary. But when independent companies fall on hard times, one thing that owners – who may be looking for just about any way out – should keep in mind is that, if they’re considering bankruptcy, it’s an expensive proposition.

Data suggests that when small businesses file for bankruptcy protection from their creditors, the price tag can typically range between $100,000 and $300,000 when all is said and done, according to a report from the Wall Street Journal. However, some have even had the cost for such proceedings climb as high as $600,000.

The reason the process is so expensive is that legal fees and other costs add up quickly, and companies that want to continue operations as normal throughout the process also end up putting themselves even deeper into the already-dire financial holes they face, the report said. And because attorneys’ fees and similar expenses can be considerable even up front, that’s often a point of concern for many companies.

So why do it?
Of course, those costs can pale in comparison with the kind of debt companies can rack up if bankruptcy really does become a viable option, the report said. Some can find themselves millions of dollars in the hole, and therefore spending just $300,000 or even $600,000 to avoid that problem can become an option that’s rather attractive. However, experts also point out that many smaller companies don’t even end up successfully emerging from bankruptcy and ready to do business again after a filing.

“It’s a little bit of a sticker shock when you figure out how much you actually owe, especially when the odds are not great of coming out of bankruptcy,” John Lavin, the chief financial officer of M. Slavin and Sons Ltd., a New York-based fish wholesaler that went through bankruptcy four years ago with some 90 employees, told the newspaper.

Entrepreneurs who want to avoid having to even think about these realities may do well to consider how best they can improve their own bottom lines. That could include finding more affordable small business insurance – including policies for general liability insurance – to potentially free up thousands of dollars annually, which can then be put toward improving other aspects of a company.