Before the fall: how to avoid bankruptcy.

• Author: Spendlove, Gretta
• Position: Legalbriefs

"CAPITALISM without bankruptcy is like Christianity without hell," wrote Frank Borman, CEO of Eastern Airlines. For many businessmen, the possibility of filing bankruptcy seems nearly as fearsome as the thought of damnation, even though the social stigma of bankruptcy is gradually fading and a bankruptcy reorganization can sometimes save, rather than kill, a company. Salt Lake bankruptcy attorneys Mona Burton, Ken Cannon and Danny Kelly have seen many businesses sink into--and at times be reborn through--bankruptcy. They offer the following tips:

Develop a Strong Professional Team

Burton emphasizes the importance of small businesses hiring a good CPA, banker and business lawyer. "Probably the best way to keep a handle on a company's finances is to hire a good CPA and have that CPA prepare monthly balance sheets and profit and loss statements," Burton says. "There is no other way that a small business can determine whether it is running at a profit or a loss." Burton believes that a good banker can offer a treasure trove of useful advice for a businessperson, as well as provide the source of financing to help a business handle cash flow and manage growth.

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Be Realistic About Your Financiers

While acknowledging the importance of developing a good banking relationship, Kelly emphasizes the equal necessity of being aware of the limits of that relationship. The downfall of many businesses, Kelly suggests, is "the tendency of believe, rightly or wrongly, that whoever holds the cash will stick with them through thick or thin--e.g., the loan documents don't really mean what they say; my relationship manager is my friend and will understand if I'm in default."

When Multiple Companies Are Owned, Keep Them Separate

"If multiple closely held companies are run as one enterprise," Cannon advises, "the creditors of one failing company may be able to force all of the companies into bankruptcy and collect debts from all the companies' assets, even if only one of the companies is really in trouble. It is essential to keep the accounting for each company separate, as well as to properly maintain all corporate filings."

Be Aware of and...