Photo / Courtesy, Whitney J. Fox Photography
Jacques Santucci, president of Opus Consulting
Updated: November 8, 2024
How to avoid becoming a commercial bankruptcy statistic
By Jacques Santucci, Opus Consulting
As we progress through 2024, businesses are increasingly feeling the weight of financial pressures, evidenced by a sharp rise in commercial bankruptcy filings.
The surge in Chapter 11 filings — up 72% in 2023, according to Epiq AACER, citing U.S. bankruptcy filing data — highlights the dire circumstances many companies face as they attempt to navigate a challenging economic landscape.
Rising interest rates, increasing operational costs, and the winding down of pandemic-era financial relief have created a perfect storm that threatens the stability of even established businesses.
In Maine, commercial bankruptcy filings have mirrored national trends, reflecting increased financial strain on local businesses. Sectors like retail and hospitality have been particularly affected due to the end of pandemic-related assistance and evolving consumer behaviors.
Maine’s economy faces unique regional challenges, including reliance on seasonal tourism and a higher cost of living, which exacerbate financial pressures.
Additionally, the use of Subchapter V elections within Chapter 11 has grown in the state, providing smaller businesses with a streamlined approach to bankruptcy. Local support programs aimed at assisting distressed businesses are available, offering valuable financial counseling and resources during these challenging times.
Tips for businesses facing financial distress
By understanding these trends and leveraging the insights provided, businesses can better position themselves to withstand economic challenges and navigate away from bankruptcy.
Avoid excessive personal compensation. Ensure that the financial needs of the business take precedence over personal financial aspirations. Striking a balance can prevent cash flow issues and contribute to long-term stability.
Limit over-leverage. Be cautious about taking on excessive debt. A heavy debt load can strain cash flow, especially during economic downturns. Consider the impact of each new debt obligation on overall financial health before proceeding.
Negotiate with creditors. Don’t hesitate to engage with creditors to seek favorable terms. Open communication can often lead to extended payment terms or reduced interest rates, providing much-needed relief in challenging times.
Review your cost structure. Regularly assess your expenses to identify areas where you can reduce costs. Benchmark against industry standards to ensure that your operations remain competitive while maintaining manageable overhead.
Focus on simple solutions. When facing financial strain, prioritize straightforward, effective measures over complex strategies. For example, consider cutting unnecessary expenses rather than launching new products that may require significant investment.
The rise in bankruptcy filings underscores broader economic challenges, but businesses can take proactive measures to safeguard their financial health and avoid becoming part of the trend. By remaining vigilant, seeking professional advice, and making strategic adjustments, companies can navigate these turbulent times and work toward financial stability.
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