Is Bankruptcy The Best Option For Your Small Business in Canada?
Small Business Bankruptcy: Is It The Best Choice For My Business?
It’s no secret that times are tough for a lot of businesses, and many small companies are having to close their doors all the time.
Whether this is thanks to poor decision making, low footfall, or high overheads, it can be a challenge to understand your options when you’re in this position.
Filing for bankruptcy as a small business can be a good way to escape the financial burden of a failing venture, though this isn’t a decision which can be taken lightly.
There are a range of factors which should influence your decision when you’re thinking about this option.
The Type of Business
The type of business you are running will have a big impact on your decision to file for bankruptcy.
There are two main types of business in Canada; sole proprietorships & partnerships and incorporated companies.
You should know which category you fall into, but there are also some other niches which exist out there.
Sole Proprietorships & Partnerships
Going bankrupt when your business is a sole proprietorship or partnership will mean that you are personally liable for the debts which the business had built.
This means that the process you will follow to become bankrupt will be more like the personal experience, rather than what most companies go through.
Owning an incorporated company will put you in a better position to file for bankruptcy.
You won’t be liable for the debt, and it won’t be you going personally bankrupt, limiting the impact it will have on your personal life.
The company’s assets will be sold to help to cover the debt, and the business may be able to survive with the right debt relief support.
This can be a very expensive process, costing at least $15,000.
Many small businesses can’t afford this, and will be much better off informally closing the business down rather than filing for bankruptcy.
The Impacting Factors
You should consider several factors before you decide between filing for bankruptcy or closing your doors.
The state of your business will often dictate the best course of action for you to take, making it crucial that you think about all of these areas before you take the plunge.
Do You Have Assets?
If your business has assets which are worth more than your debt, selling them could be a good way to make enough money to cover the money you owe.
It will be worth making sure that you’re allowed to do this, though, as creditors may have a claim to these assets if you have owed them money for a very long time.
These organizations will often prefer to recover their money themselves, rather than letting you sell the items.
If your assets are worth less than your debt, you may need to consider closing your doors.
Are You Making Money?
Businesses which are still making money often have to file for bankruptcy.
If you are making enough to pay off your debt, but need help getting there, it could be worth looking for support with debt relief.
On the other hand, though, if you’re putting your personal funds into a business which isn’t doing well, it could be worth simply turning away from it.
Making a little bit of profit isn’t a win when you’ve sunk a fortune to do it.
Are You Liable For Debts?
In some cases, even having an incorporated company won’t enable you to escape from liability for all of your debts.
CRA debts are a great example of this, with many people taking on loans like this and having to personally guarantee them in the process.
If you are in this position, it could be much better to simply close your doors, as filing for bankruptcy like this will have an impact on your personal finances.
Getting Help To File For Bankruptcy As A Small Business
Filing for bankruptcy is a complicated process, and many people struggle to get through it alone.
Here at Bankruptcy Canada, we work extremely hard to provide honest advice to our clients.
We can talk you through your debt relief options, and will be able to give you a clearer idea of which course of action will be the best for your small business.
It’s worth getting in touch today if you’re considering bankruptcy for your small business.
You can contact our friendly team by calling at 1-877-879-4770 or sending an email to Gordon@BankruptcyCanada.com.
All of our advice is confidential and obligation free.