SURVIVAL TIPS FOR THE FINANCIALLY CHALLENGED SMALL BUSINESS

The Challenge - So you've done everything you can as a small business owner to reverse the negative cash flows, such as extending the terms on your payables and accelerating your receivables.  You've downsized your fixed costs and other expenses, increased marketing and staff production.  You have even raised prices where you could, but your business is still "under-water".  You do not have any asset sale/leaseback opportunities as a source of cash.  You maximized your credit lines while times were good, but available credit has been exhausted.    Defaults on your loans and the possibility of lawsuits are looming.  You are faced with the reality that your business might be a casualty of the current economic downturn if something is not done quickly.

Protect Your Home - State legislators increased the homestead exemption last year to $125,000, which means that creditors that do not have a security interest in your home cannot force a sale of your home if you have net equity in your home of $125,000 or less.  By "net" equity, that means net proceeds after you pay off the home loan(s) and other costs of sale.  If you have more equity than this, consider a refinance to reduce your "net" equity.  But be careful - make sure you can make the payments. You may need to downsize your home living arrangements or consider renting.

Protect Your Retirement Accounts - State law also protects these accounts from creditors.  The protection extends to annuities and life insurance.  The adverse tax consequences on withdrawal should be enough of a deterrent to avoid accessing funds in these accounts, and even if these penalties are removed, these should be the last assets that are invaded to fund cash shortfalls for a flawed business.

Protect Your Business - In your current situation, your Business is the most important asset to protect because it generates the income that you and your family depend on for support and maintenance.  For that reason, you should consider hiring a lawyer specializing in asset protection to develop a Plan of Reorganization - one that makes the recently revised small business reorganization rules under Chapter 13 of the Federal Bankruptcy Code your friend and ally.  The realistic threat of a well-conceived, court approvable Plan of Reorganization is the key to achieving positive gains for the small business owner during the negotiation process.

Many times, Bankruptcy can be completely avoided.  Positive results may include:

• new capital through a renegotiation of your existing debt
• lower monthly debt payments
• extensions of loan maturity dates
• a period of forbearance with no debt payments
• confidentiality with respect to credit reporting agencies
• credit score management and repair

The net result is that you have protected and improved your Business and your income stream.  You still have your home and your retirement savings.  Your good credit has been maintained which is extremely important in today's world.  You have addressed the problem at its core and can consider yourself a survivor of this economic downturn.  Be proactive.  Take steps today to protect your core assets.

Mr. Seward is an asset protection attorney with offices in Port Orchard and Seattle.  Visit http://www.richardseward.com/ for more information.  All rights reserved ©.