The best legal bankruptcy advice for entrepreneurs starting out? Avoid it. Business is complex, so entrepreneurs should plan to do their homework. Concentrate on learning how to run a business, with an eye toward making sure you follow regulations and document financials. Finally, hire people to help you understand what you don’t know, such as business bankruptcy attorneys and accountants, so that your business can grow and prosper, say experts.
Bennett-Guthrie associate Elizabeth F. Lawson, who is a business bankruptcy lawyer based in Winston-Salem, spoke recently to a group of budding entrepreneurs – and promptly got their attention.
“I told them, ‘let me tell you all the things that happen, what you should do and what you shouldn’t do, so you don’t end up with me,’ ” she said.
Lawson was taking part in a panel discussion for the Forsyth County Economic & Community Development Department IDA program in Winston-Salem, which helps beginning businesses with organization, business coaching and financial advice.
So often, Lawson said, she’s found that new entrepreneurs know their trade or craft, but not how to run a business.
“They know the jewelry business, but they don’t know Quickbooks,” she said. “There are things you have to do – insurance, financials every month. I tell people to use a payroll company. Don’t co-mingle funds. Make sure you don’t grow too quickly, make sure you can afford people. And you have to have workers’ comp insurance if you have three or more people.”
Two bottom lines:
It’s complicated.
And if there is something you don’t know how to do, it is well worth it to hire someone who does.
“That way, you don’t end up wasting money or owing money, because you didn’t realize the consequences of your actions,” Lawson said. “Keeping up with your bank account is huge, you can’t pay your personal rent out of your business, or buy business supplies with your personal account.”
Lawson’s basic list of what to do:
- Structure it right. At the least, a business should be within an LLC, if the business owner has a house and cars and other things they want to be able to keep if things go south. Too often, a sole proprietorship means that personal possessions can be taken in a bankruptcy or end up entangled in litigation.
- Pay what you owe. Federal taxes. State taxes. Sales taxes. Liability insurance. Worker’s compensation insurance. All of it.
- Keep up with laws and regulations. It’s fine to have an idea, it’s even better to make money at it, but it can all be taken away if you do the wrong thing at the wrong time.
Lawson said that last point can make for the saddest cases. In one, a client who was an expert in his field signed a personal guarantee for materials – and now faces losing everything because others didn’t pay him, which in turn fell back on the business owner.
“If you are going to sign something, know what you are signing or have someone go over it,” she said. “If you don’t understand how taxes or finances work , have an accountant look over it. If you don’t know something, find somebody who does.”
Keep in mind that if it comes to it, Bennett-Guthrie has attorneys on staff skilled in debt settlement and both business and corporate restructuring. Lawson says she can often see at a glance what’s going wrong and what options are available to the business owner.
“I will tell them, ‘look at this, this and this,’ ” she said. ”This is what you can do. If they don’t listen and do what’s advised, we will see you again – either in our office or we’ll see you in court. There are people who know what they are talking about – listen to them. It may be the only business you have but it’s not the only business we have dealt with.”
Lawson said that she and her colleagues know that there is often an emotional toll to all of it.
“Losing a business can be like losing a child,” she said. “This is something that you have put a lot of work and effort into and now it is going to die and you don’t know where to go from there.”
For some, it’s easier to walk away from it and go back to work for someone else. For others, bankruptcy isn’t necessarily the end of the dream.
For all, it makes sense to get some help figuring it out.
“Keep in mind that your employees are people and they relied on you and now they don’t know where their next meal is coming from,” said Lawson. “So, let’s sit down and figure out what you can do.”
It might mean downsizing. Layoffs. Finding ways to cut costs. It might mean bankruptcy or dissolution, if that’s the right answer in this particular situation.
“You can always start another business,” she said. “That’s why Chapter 7 is available.It’s a safety net for small businesses. If the bottom falls out, you can file bankruptcy and start again. It allows small businesses a chance to try and if it doesn’t work, to try again. It’s not a stain on your existence to file bankruptcy.”
Finally, when you see the warning signs that your business finances need help, get help sooner rather than later.
“We don’t charge a consultation fee for an initial meeting,” said Lawson. “We do know we can help you get this sorted out, but the earlier you start – the sooner you call on us – the more we can do and the lower the cost will be. Please do make us your first call.”
