People associate business bankruptcy with failure that occurs when a business owner could not compete in a highly competitive market. Fashion designer Betsey Johnson might have fit that description in 2012 when, after 35 years in business, dwindling profits and mounting debt forced her to close the 63 shops that sold her clothing designs for women and give termination notices to 350 employees.
The bankruptcy Johnson filed in April could have signaled the end of the 70-year-old designer’s career. Instead, her commercial bankruptcy offered the designer an opportunity to reinvent her line of clothing and accessories to make them competitive in the marketplace. Dress designs that would have sold in her shops for a minimum of $400 will now be sold at department stores at prices ranging from $99 to $249.
Cash flow issues are not limited to the fashion industry. Successful businesses can experience periodic cash shortages because of lagging sales, slow-paying accounts receivables or creditors refusing to negotiate payment terms. Mounting debt can lead to a forced liquidation of assets to satisfy creditor demands and, ultimately, the closure of the business.
A business reorganization through Chapter 11 bankruptcy might offer a solution for a business owner confronted by dwindling profits and overwhelming debt, but all businesses and the financial challenges they face are not the same. A bankruptcy attorney might suggest business debt negotiations, the liquidation of assets, Chapter 11 or a combination of options as dictated by the unique challenges of the particular business. Not all business owners bounce back from a failed business venture as quickly this fashion designer, but getting advice and guidance from an experienced bankruptcy attorney may help a business owner to avoid costly mistakes.
Source: Time, “Comeback queen: After bankruptcy, Betsey Johnson plans 2013 return,” Erin Skarda, Jan. 2, 2013