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The Double Whammy of Small Business Bankruptcy

Tuesday, September 29,2009 11:26 AM

An article in the WSJ got me thinking today ... with the massive surge in entrepreneurial endeavors in the last few years, more and more people have exposed themselves (and their families and their lifestyles) to the life-changing rigors of bankruptcy due to a few crucial mistakes when setting up their businesses. And while we all know the attorneys are to blame :-), ultimately we have to take responsibility for what happens to our business when the economy takes a tumble -- even a HUGE tumble as it has in the last year. Mistakes look like optimism:

Consider Susan Hartzler, who started a public-relations firm, Alpha Dog PR, in 2006. She'd had trouble with business partners in the past, so she decided to operate as a sole proprietorship with some part-time help. The expense of forming a corporation—such as accountants and lawyers—seemed unnecessary, since she planned to keep the company small.

Or innocence:

"I didn't know that personal assets would be on the hook," Ms. Hartzler says. When she talked to advisers about setting up a company, "I didn't know to ask," she says.

Or failure to read the fine print on a loan doc:

Mr. Tardiff (who had formed an LLC) had signed a personal guarantee for their bank financing—rendering him personally responsible for $75,000 in business loans. Because the loan was taken out under the business name, Mr. Tardiff simply hadn't understood that his personal assets could be involved.

Entrepreneurs being what they are, the spate of bankruptcies aren't shocking, really. After all, we're a pretty sunny group of people.

One reason small-business owners are sometimes blindsided by the consequences of the loan documents they signed, Mr. Kucera adds, is a natural tendency toward optimism. Entrepreneurs "usually have a great faith in what they're doing. Planning for bankruptcy isn't something that comes naturally to them," he says.

Anyway, as we've said elsewhere on this blog, there are a few things to keep in mind, the most important of which is to KEEP BUSINESS AND PERSONAL EXPENSES AND ACCOUNTS SEPARATE. And definitely go read the rest of the article to see more tips to keep yourself, your business and your family out of hot water. http://online.wsj.com/article/SB10001424052970204731804574386844132423118.html?mod=loomia&loomia_si=t0:a16:g2:r1:c0.0836715:b27982898