How to Reorganize a Failing Business

It's never easy to watch your business falter. Sales slow down, perhaps one or more major customers take their business elsewhere (or go out of business too)--and there you are, scrambling to keep your company afloat. But with perseverance, a little luck and some vision, you may be able to turn things around--and even grow stronger.

Limit your worrying. This sounds counterintuitive when serious concerns dominate your days (and keep you awake at night), but by allowing yourself to remain in a state of constant anxiety, you're taking energy away from problem solving. Free-floating anxiety saps the imagination. Focus and determination are what you need now. Revisit 16 Set Goals and focus your attention on taking care of critical decisions.

Analyze the failure of your current business model. By figuring out why a business is failing, you can often determine the best new direction to take. A consultant can be extremely helpful in this situation, since you may be too close to the situation to understand what went wrong.

Determine whether the problem lies somewhere in the supply-and-distribution chain. Compare your pricing structure to that of your competitors. Are you charging too much for your product or service?

Ask yourself difficult questions that specifically apply to your company. Have sales of core products declined dramatically? Has overdiversification drained your resources? Did you attempt too much growth too rapidly? Take a step back and look at your business without emotion.

Contact creditors. While you work out a plan to restructure and revitalize your business, attempt to negotiate a payment plan with them (see, Get Out of Debt). Remember, when faced with an avalanche of bills, always pay employee salaries first.

Reduce your workforce costs. If a reduced workweek or temporary leaves without pay do not cut salary costs enough to save the business, you'll have to consider layoffs. Remember, though, that layoffs will necessitate certain expenditures, including severance pay and insurance costs. Set up clear, nondiscriminatory criteria for choosing which workers to let go and then follow those procedures withuot fail.

List the pros and cons of obtaining a loan to help temporarily bail out your business. An accountant or financial planner can help you determine if this is an viable option in light of your circumstances.

Determine if filing for bankruptcy is your best course of action. Because this is such a complex decision, research the subject thoroughly (see, Survive Bankruptcy). Know that when Congress overhauled the U.S. Bankruptcy Code in 2005, it made filing for bankruptcy far more difficult and complicated.


  • Seek out Web sites offering useful bankruptcy information, such as and as well as government agencies. Helpful books include Grant W. Newton's 'Corporate Bankruptcy: Tools, Strategies, and Alternatives' and Thomas J. Salerno's 'The Executive Guide to Corporate Bankruptcy.' Talk to your landlord to determine if you can move to a smaller, less expensive office space in the same building. This usually proves to be more economical than changing landlords. Prepare a clear business plan if you decide to apply for a loan. You will need to show precisely how you intend to use the loan to help ease the company's woes. Useful articles on include 'Write a Business Plan' and 'Organize a Loan Application.'

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