Your Restaurant is Failing – Now What?

Restaurants fail for a variety of reasons, from failure to watch costs to failure to develop the right menu to a nearby construction project eliminating most of your on-street parking.  If you followed the tips in my previous article, you should have some money to rely on going forward.

If your financial problems are operational or managerial, one of the things you can do at this late stage is to hire a consultant to help you tweak your menu, streamline your operations, or take any of a number of additional steps to bring you back to profitability.  This is the time to be humble, rather than arrogant – ask for help!  You should also consult with a bankruptcy lawyer at this point.  That does not mean you are necessarily going to file bankruptcy, but an attorney knowledgeable in this area can tell you what to expect if different scenarios unfold. Unanswered ‘end-game’ questions will add to your stress and divert you from your primary mission of saving your restaurant. You can learn a lot of useful information for not a lot of money, and gain some peace of mind as well.

A bankruptcy attorney also can help with your current problems. For instance, the attorney can negotiate with the landlord, either to reduce the rent or give back some space.  He can negotiate with your lender and your suppliers to negotiate better terms, or a temporary break in your monthly payments.

He can assist in your negotiations with new investors, purchasers, or existing partners.

Finally, he can assist you in the filing of a personal or business bankruptcy.  Although it would be unlikely for a restaurant to file a Chapter 11 reorganization or a Chapter 7 liquidation, sometimes the particular circumstances of a case can make it appropriate.  For instance, if you are personally liable on payroll or other employment taxes, sometimes you or a bankruptcy trustee can liquidate the business assets under court protection, and distribute the proceeds on your tax debts, many of which can survive a bankruptcy and hobble your financial future.

More likely, you would file a personal Chapter 7 liquidation in order to discharge your personal guarantees, as well as your individual debts.  If you planned carefully, you may lose few, if any, assets in your bankruptcy.  Even if you do, it is probably better than dealing with multiple judgments, garnishments, and related hassles.  The filing of a bankruptcy gives you a ‘fresh start” so you can have a clean break from your financially troubled past and start rebuilding your credit rating and financial reputation.

If you can’t work out or restructure your debts, and sometimes even if you can, a bankruptcy filing may be the better option for you. Again, it is important to speak with someone knowledgeable in the area.

For more information, read “Opening a Restaurant: Plan for Success – and Failure, Too.”

Posted by Attorney A. Thomas DeWoskin. DeWoskin practices in the areas of bankruptcy, creditors’ rights, and commercial law. He represents creditors, business debtors, and individuals with difficult or unusual financial situations. DeWoskin served as a bankruptcy trustee for the Eastern District of Missouri for over 35 years.