Financial Restructuring Tips for After a Small Business Fails

February 21, 2019

Nobody wants their small business to fail, but the unfortunate reality is that it happens. Statistics show that on average 15% of start-ups fail in their first year, and only 50% make it past five years.

If your business is struggling, it can feel devastating — emotionally and financially. But there are ways to ease the blow, especially when it comes to finances.

  1. Know Your Options

Your options depend partly on the type of business you are running.

If it is incorporated, your business is considered by law to be a separate legal entity, which may provide you with personal liability protection.

However, if it is a sole proprietorship or partnership, then the assets of the business cannot be held separately from your personal assets.

In both cases, you might consider:

  • Reworking your budget. This should be done regardless but will likely need to be combined with another option.
  • Consolidating loans.
  • Looking for additional financing.
  • Selling surplus assets.
  • Filing for a Division II Consumer Proposal, where you work with a Licensed Insolvency Trustee to offer to pay your creditors a percentage of what you owe them over a period of time.
  • Filing for Bankruptcy. Note that if your business is not incorporated, filing for a small business Bankruptcy is, in effect, filing for personal Bankruptcy.

In any case, you will need to consider an option that allows you to pay or deal with any outstanding debts or expenses.

  1. Get Your Personal Finances in Order

Even if your small business is incorporated, you will need to look at your personal finances, as well as your business ones.

You may no longer be able to rely on the income from your small business, so you will need to figure out a budget to get you through the interim period until you can either get your business back to a solvent place or find alternate work.

Realistically look at your monthly expenses and determine what is a need and what is a want. Figure out the minimum you need to spend to get by. If there is no way to make ends meet, it’s time to either look for another source of income or consider debt consolidation options.

  1. Get Professional Help

You don’t have to undertake financial restructuring alone. In fact, that can be one of the most stressful tasks to try to do by yourself.

Having a small business go under, or flounder financially, can be emotionally trying and it can be hard to make the tough decisions that are sometimes needed. Bringing in outside assistance can give a new perspective and help you make decisions without emotions attached.

A great resource for help is a Licensed Insolvency Trustee, because they can assist with everything from financial restructuring, to budgeting, to debt consolidation, to exploring insolvency options, like filing for a Consumer Proposal or for Bankruptcy. The initial consultation is usually free, and completely confidential.

  1. Consider Filing for a Consumer Proposal or Bankruptcy

Oftentimes we hear about large corporations filing for Bankruptcy and continuing to operate. But it can be very different for a small business.

Some business operators hear the words “Consumer Proposal” or “Bankruptcy” and fear the worst but depending on the situation it can actually be the best resolution.

In a Consumer or Division II Proposal, you offer a settlement to your creditors. If the majority accept, your debts are cleared. In a Bankruptcy, the Licensed Insolvency Trustee takes possession of your assets and sells them to pay off your debts.

In both cases, you are given a blank slate to start over. While it may take some time to rebuild credit, it’s a better alternative than collection action. This is especially true if you will owe taxes to the Canada Revenue Agency (CRA) that you cannot pay.

  1. Don’t Beat Yourself Up

If your small business has gone under, you may be feeling a mix of emotions – guilt, shame, regret, to name a few. But you need to remember: there is hope ahead.

Everyone makes mistakes and if you choose to look at this as a personal failure, it will only lead to a dark emotional state. Instead, think of it as a learning opportunity. You tried something that didn’t quite work out — but what lessons can you take from this? If you were to do it again, what would you do differently? What advice would you give to someone else in your situation?

Also, know that you are not alone. It can be tough starting a small business, and the unfortunate reality is that about 50% do not make it past year five. Even if you’ve been operating longer, changes in the economy, the industry, or factors largely outside of your control can cause revenue to drop quickly.

If you find yourself facing distressing or intrusive thoughts, remember that help is available. Consider speaking with a counsellor or looking for a support group.

While financial restructuring for a small business can be a stressful undertaking, Fuller Financial Solutions can ease the strain. Our team of financial counsellors will help assess your unique situation and create a plan that works for you.

Contact us today to book a free consultation. Call 416-927-7200 or visit