Let’s start with this: there are many reasons why small businesses end up filing for bankruptcy; including several that have nothing to do with egregious decision-making.
For example, thousands of small businesses were wiped off the face of the business landscape during the Great Recession, because financial institutions decided that it was fun and profitable to carve up asset-backed debts and resell them as investment products that even economists couldn’t understand — let alone consumers who were stuck holding the bag (and alas, footing the bill for the bailout).
Yet with this being said, it’s obviously true that many small businesses that file for bankruptcy — typically either chapter 11 with the hope of re-emerging down the road, or chapter 7 when the party’s over and the lights go out — do so because they make some catastrophic errors that only look fatal in hindsight. At the time, they didn’t much seem like blunders at all. And according to experienced business and consumer bankruptcy attorney Charles Huber, founder and principal of the Law Office of Charles Huber, the little-discussed — but massive — mistake that sends an astonishing number of small businesses into bankruptcy is lack of succession planning.
To be fair, it’s easy to understand why most small businesses spend decades kicking the can when it comes to succession planning. Everyone is too busy scrambling to either sell more stuff, serve customers, or take care of mountains of administration and filing (thank you, Uncle Sam and your relatives at the state and local levels!).
Yet there inevitably comes a tipping point when small business owners must hand over the reigns — at least in part — to someone who is ready, willing and most importantly, able to keep things on-track. Unfortunately, a smooth transition is the exception rather than the norm. What usually happens is a period of frenetic chaos and damage control. In the best case scenario, small businesses weather the storm; but not without slowing down (or eliminating) growth or market share. In the worst case scenario, it could prove the end of the road.
Fortunately, if you’re a small business owner, then reading this article is your alarm bell to make succession planning a priority right now. Because, eventually, kicking the can comes to an end, and there’s no way to turn back the clock. There’s only bracing for impact, and possibly — or make that probably — heading for an unwanted sell-off or shut-down.