The ATA Airlines bankruptcy was a recent headline grabber (in fact, I wrote about it in an earlier blog), but another big name company, Sharper Image, had filed for Chapter 11 bankruptcy back in February. It’s interesting to compare the two situations. As a business bankruptcy attorney in Indiana these many year, I try to understand the factors that lead companies to struggle financially and finally to avail themselves of the safety net the bankruptcy courts provide.
Both ATA and Sharper Image had suffered through years of declining sales and bottom line losses. Some particular factors that played a strong role in both companies’ difficulties were rising fuel prices, competition, and tightening credit (stricter credit requirements made it difficult for ATA to obtain money for needed updates and repairs to planes, and difficult for Sharper Image to open new stores and build inventory).
In each case, however, there was one big “straw that broke the camel’s back”. In the case of ATA, as I’ve written about earlier, it was losing the FedEx contract to transport military troops and supplies on ATA planes. This had been the one profit center for the airline, and, without that source of revenue, the company was unable to go on. Sharper Image’s “straw” was different. A series of class action lawsuits having to do with claims that their Ionic Breeze air purifiers did not produce promised results for consumers turned out to be highly expensive in terms of legal costs and negative publicity.
In my bankruptcy law practice, I deal mostly with privately-held, small businesses, advising them on their financial strategies and helping them deal with debt issues. Since my clients’ companies are not publicly held, their earnings (and their losses) do not appear in shareholders’ reports. By the time the owners of small businesses are talking to me, their companies have sustained losses for years. Often they have faced some of the very same type of credit crunch and competitive challenges that ATA and Sharper Image encountered. But, unlike the giants, these small businesses suffer in silence – and, often in secrecy – with the owners hoping for a miraculous turnaround.
One of the messages I hope this bankruptcy blog will bring to business owners is that it will be easier in the long run if they face up to difficulties at the first sign of trouble, creating a strategy that allows for the possibility of filing bankrupcy, but at the very same time taking all possible steps to prevent debt problems from overwhelming the business.
Categorised in: Bankruptcy Indiana
This post was written by Mark Zuckerberg