Expert: Christine Janklow - 11/5/2008

Question
Hello,
My husband and his father have been the partners of a S Corporation for the last 25 years. I do the books but am not an officer. We are an excavation company that have been focused in the new housing market. Unfortunately housing has busted and I am very worried. We are behind on equipment payments by a few months. We own the majority of our equipment. Value is approximately half a million if sold. I have clearly laid out the situation to them but just see us getting deeper and deeper. They have not sold any equipment, the credit line is maxed, and my cash flow is not covering our debt. I barely make payroll each week. we have 5 employees in addition to ourselves.
What is the first step to going out of business? I believe that is where we are headed. I don't believe they know what to do and are sticking their heads in the sand. I will not place my house as collateral on a loan and we do not own our building, we rent. Thank you for any guidance you can offer.

Answer
Karen:
Thank you for your question. I do regret that your business is not doing well in this poor economy. I can not advise you on dissolution of a business as I am not an attorney, however I do know that business closure may be avoidable if you reduce some major expenses including payroll overhead, debt, etc. With the downturn in your project load do you really need to keep five employees on staff? You might consider cutting them back to hourly or project by project work. As for your equipment, as it is specific to your type of work, it may not yield a price in this market as others are no doubt experiencing the same. If you think it will, than by all means sell it so you can attain some solvency to pay down debt. The answer to your issue cant be resolved by further borrowing, as it will not increase your ability to get work from outside sources, and leave you further in debt. If you are really intent on closure, than it is advisable to seek legal counsel as there are consequences to closing a corp. These may include remove the protective "corporate veil" against future creditor claims, or employment issues. You can also settle the debt with your creditors at a fraction of what is owed. If you don't do well in negotiating, you can enroll the unsecured debt with a commercial debt settlement firm such as the one I represent. You can also hire a turnaround consultant in your area to do a comprehensive financial plan that could enable your downsize to be productive. Bottom line, you, your husband and father in law are adults and you need to sit down and face the reality of your situation. You don't just own the good times, but also the bad and make sure that no one places direct blame as this downturn was externally driven. Then make a plan to cut down on everything possible, and even go to your landlord and ask for some relief in the rent if possible. I wish you well.

Respectfully,

Christine Janklow