For the second time in its 27 years as a U.S. free-trade fashion retailer, American Apparel® has filed for Chapter 11 bankruptcy—unofficially named “Chapter 22.” The company originally filed in 2015, struggled through its plans for financial recovery, and reentered U.S. bankruptcy courts in early November of 2016. American Apparel caters to the global market, but the company’s situation still serves as an advisory tale to smaller businesses in Minnesota. Behm Law Group, Ltd. is dedicated to assisting residents and business owners during the process of bankruptcy in Mankato, MN.
Since American Apparel left bankruptcy court in early 2016, they’ve struggled with several factors that affected the performance of their company.
Financial Issues for American Apparel
Despite attempting to recover from their first bout of bankruptcy, American Apparel faced poor market conditions that affected retailers across the country. The company has also been consistently set back by certain internal affairs and several unwise marketing choices (i.e. advertising swim suits off-season and neglecting to increase online sales). Since its debts of $497 million forced American Apparel to file in 2015, the lack of turnaround has left the company with $215 million in debt this year alone.
American Apparel filed for bankruptcy this year because of several factors, many of which affect small businesses in Mankato very similarly.
Financing and Funds
The majority of small businesses that file for bankruptcy gather debts based on their lack of financing and funding, both internally and externally. Loans can only help a business in the long run if they are able to gain back significant revenue to continue making loan repayments. Many startups are unable to reconcile expenses and debts with their cash flow.
Just as American Apparel struggled with the market conditions over the past year, small businesses are affected by the economy as well. Overarching depression in the market harm revenue for small businesses, but fluctuations within specific markets also affect local companies. The revenue of any business is based on the demand of its product, and market shifts can be subtle and sudden, leaving bankruptcy in a company’s path.
While it’s true that business owners making wise economic choices can still have revenue affected negatively in ways outside of their control, the choices any company makes will impact its ability to cash flow. Poor economic choices, such as some of American Apparel’s marketing decisions, will push a business further into debt and closer to bankruptcy.
If you own a small business and have recently struggled with debts, bankruptcy may actually be the right choice for you. Contact Behm Law Group, Ltd. at (507) 387-7200 for more information about filing for bankruptcy in Mankato, MN.