Latest on the list: Lenny “Nails” Dykstra.
What happens to cause a small business to file Chapter 11?
Evil partner, bookkeeper, employee leaves with the money. Happens a lot.
For most of my clients, not starting with enough money.
I always say, you want to be the boss, start your own business?
Have enough to operate the business for a year if you have no receipts, and enough to live on for that year.
Write down your expectations, and, the minimum you expect you need to give year two a try.
Apparently, Nails claims Washington Mutual misled him about his ability to repay the mortgage on the $17.5 million mansion he bought from Hockey Hall of Famer Wayne Gretzky.
Well, that happened to plenty of people who paid quite a bit less for their homes.
Obviously, Dykstra was not making money in his business operations either.
The sand dune is built one grain of sand at a time. My clients keep hoping things will get better tomorrow, if only the plant re-opens, the insurance companies start paying more for auto repairs, people use travel agents again, whatever.
Take off the rose colored glasses, and look at the facts.
Part of the Great American Dream, be your own boss!
Keep separate books and bank accounts for the business, so that you can do this. Most small business people mingle the money, make the car or house payment out of the corporate account, take cash advances on the personal credit cards and pay corporate bills with that money, stuff like that.
No way to figure out if a Chapter 11 will help your business, unless you know how much it cost to operate that business.
And, your variable overhead, if you are hiring more workers, buying more materials/services, when you have more orders.
You must know how much your fixed overhead is, that is, how much does it cost you to keep the doors open, whether you make or sell product or not.
If you do not understand these concepts, you should not be running a business.
As a lawyer friend of mine says, you can stay home and go broke!
But, let’s say you figure this stuff out, what it costs to stay open every month, there is more analysis to be done on whether this business can come out of Chapter 11 as a viable company.
(to be continued . . . )
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