Business Bankruptcy Attorney Daniel J. Weintraub Comments on Recent Chain Restaurant Bankruptcies

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Business Bankruptcy Attorney Daniel J. Weintraub of Weintraub & Selth says that recent challenges for large restaurant chains can offer lessons for small business owners.

...even though chain restaurants like the Elephant Bar, Sbarro, and Crumbs may have a national and even international presence, they still have lessons for small business owners.

Three months ago the fast-food Italian themed restaurant Sbarro filed for Chapter 11 bankruptcy protection. But, according to a June 3, 2014 article by Brian Solomon in Forbes magazine, Sbarro has already emerged from bankruptcy with new investors and a new business model ("Reheated: Sbarro Exits Bankruptcy With New Chipotle-Style Plan For Pizza"). According to Solomon, the company will now focus on made-to-order personal pizzas. Will the change be enough to save the company?

Los Angeles Business Bankruptcy Attorney Daniel J. Weintraub of Weintraub & Selth says "Sbarro is a perfect example of how a business can file for bankruptcy and emerge in a stronger position to possibly thrive into the future. Many people hear the term 'bankruptcy' and believe it means the end of a business. But, depending on circumstances, bankruptcy may improve profitability and allow for greater opportunities. That does not mean Sbarro's struggles are over but its future certainly looks brighter than it did three or four months ago."

Weintraub says "fast-casual dining is an extremely competitive market and Sbarro is not the only restaurant chain facing challenges." The attorney mentions recent bankruptcy filings by the Elephant Bar and Crumbs Bake Shops.

On June 20, 2014 the CBS news affiliate in Los Angeles reported that S.B. Restaurant Co., the Elephant Bar's parent company, was filing for Chapter 11 bankruptcy and closing at least 16 Elephant Bar restaurants from California to Florida ("Elephant Bar Parent Company Files For Bankruptcy, Cites ‘Challenging’ Economy"). Twenty-nine locations will remain open. According to the report, the executives of the company indicated a challenging economy and increased competition in the casual-dining marketplace.

Crumbs Bake Shop, a cupcake retailer with 65 stores located throughout the Northeast, also filed for bankruptcy recently. In a press release that appeared on July 11 in the Wall Street Journal on behalf of Crumbs, the company reported that it will now be acquired by investor Marcus Lemonis and Fischer Enterprises as it goes through Chapter 11 reorganization. For now, all 65 stores are closed but that will change shortly, according to the company's statement. The investors will provide debtor in possession financing for the new venture. According to multiple media reports, including this NBC report from July 14, 2014, the new version of Crumbs will expand its offerings beyond cupcakes.

Weiuntraub says "like business owners in many fields, restaurant owners are sometimes so focused on day-to-day operations that they are unaware of the long-term financial struggles that are developing. Many times if a business owner contacts our firm early enough, we can analyze their situation and develop practical solutions for, possibly, avoiding bankruptcy. Perhaps slowing the company's growth, eliminating certain costs, negotiating with creditors...the earlier we get involved, the more options are available."

Weintraub argues that if a business owner is proactive in seeking out help at the earliest sign of financial stress, "less drastic measures can be taken. What most business owners do not realize is that by the time the company is in financial distress, credit has almost always already been substantially damaged. Often vendors have instituted COD terms and a bankruptcy filing really has little to no impact in this regard. With respect to control of the business, unless there has been fraud or gross mismanagement, the Chapter 11 process presumes management will remain in place and seeks to leave business operations unaffected though operating under the purview of the bankruptcy court. Though bankruptcy can offer solutions, at Weintraub & Selth, we try to help our clients avoid bankruptcy whenever possible."

While the aforementioned restaurant chains may all emerge stronger than ever before, there are many other challenges ahead, according to Weintraub. The attorney says that even though chain restaurants like the Elephant Bar, Sbarro, and Crumbs may have a national and even international presence, their experiences still have lessons for small business owners. "Small business owners can learn from these massive corporations to take action before bankruptcy is the only available option."

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Daniel J. Weintraub
since: 10/2010
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