Kansas City bankruptcy attorney Neil Sader has seen plenty of clients whose small businesses have failed. What went wrong for those entrepreneurs?
“The biggest problems small businesses have that I see all the time are pretty simple to categorize,” Sader said. “One, they have no cash cushion, no capital saved for a rainy day. And two, their initial costs going into the business end up being far higher than they ever imagined. That is so typical. They just draw their line of credit, they max out and they just can’t survive any kind of downturn.
“The other thing that you look for when a company is in trouble is when they stop paying their withholding taxes. The bank of last resort, as we call it, is the IRS, and when companies stop paying their withholding taxes for their employees, that’s a sure sign of a very serious situation.”
Still, no matter how dire the situation, careful deliberation should be given before choosing bankruptcy.
“The fact is nobody should consider filing bankruptcy unless the benefits outweigh the detriments,” Sader said. “Bankruptcy is not for people with no money. Bankruptcy is for people who want to protect something.
“But the perceived blacklisting or scarlet letter or whatever you want to call it that people feel is attached to bankruptcy is often a figment of their imagination in this day and age. In a culture like ours and in an economy like ours that values entrepreneurship, bankruptcy is vital to encouraging people to take risks and to take the plunge and to try to make something happen. What I tell people all the time is that filing bankruptcy is something that you can never really get rid of, but it’s something you can overcome.”