Bankruptcy Isn't Only Option for Failing Businesses.

No one starts a business planning to fail, but the reality is that some business ventures do not succeed in taking root or remaining viable in the long run. That's not always the business owner's fault.

Business failures are sometimes the result of external influences that even experienced and savvy entrepreneurs cannot overcome.

It may not be the most uplifting aspect of your business management responsibilities, but you can save yourself a lot of personal and emotional upheaval by thinking now about how you might exit most efficiently from financial difficulties looming on the horizon. This is especially important in a middle-market community like Southern California, where the vast majority of businesses are closely held.

Such companies often rely on lines of credit from banks and commercial lenders for asset-based loans, which is credit secured by the business assets. In making loans to closely held businesses, ABL lenders commonly require them to provide personal guarantees. Translation: If the business doesn't repay the loan in full, the owner/guarantor will be required to do so.

When the viability of the business seems at its end, business owners often convince themselves or are persuaded by others that a Chapter 11 bankruptcy filing is the only way out. However, there are non-bankruptcy alternatives that may be overlooked in the midst of the chaos. These alternatives are often less expensive and more streamlined than a bankruptcy filing.

No matter what course of action is ultimately chosen, one of the most common - and potentially damaging - errors during this period is the failure to create a realistic appraisal of the prospects for a successful reorganization.

If the business cannot be reorganized and ultimately ends up going under, losses that are incurred before and after the work-out effort often significantly reduce the business assets available, for satisfying the loans from the bank or ABL lender.

It is, therefore, vitally important to consider your prospects for reorganization before taking any action. Prepare carefully, and you may lose only the business. Overlook this assessment and consequently miss the mark, and you may also lose personal assets or even be forced to file personal bankruptcy.

David Levene is a partner with the bankruptcy and financial reorganization firm of Levene, Neale, Bender & Rankin located in Century City.