13 Top eCommerce Trends to Know in 2023
ByDanica Djokic
March 07,2023
The eCommerce landscape is constantly evolving. What was popular last year may not be so hot this year, and what’s trending now may be totally different a year from now. In the aftermath of the pandemic, we’re seeing even more changes in the way people shop online.
To stay ahead of the curve and nail your strategy, you need to stay up to date with the latest eCommerce trends. We've put together a list of factors that will shape eCommerce in the next few years so that you can make the necessary changes to your online store and outdo the competition.
B2C ECommerce Will Overtake B2B
Traditional in-person shopping may never be the same again. The pandemic has pushed people to shop online out of necessity, and many have found that they actually prefer it. Convenience, safety, and a wider selection are all big selling points for eCommerce. It’s no wonder that 52% of people who switched to online shopping for groceries said they wouldn’t switch back.
As a result, we expect to see a continued increase in online shopping even after the pandemic is over. This shift will have a big impact on the types of products that are being sold online.
We can already see new trends in eCommerce - a move away from heavy, bulky items that are difficult to transport and an increase in sales of smaller items that can be easily shipped. This trend is likely to continue as people become more accustomed to shopping online for items that they would traditionally have bought in-store.
Another big trend that we’re seeing is a shift from business-to-business eCommerce to business-to-consumer eCommerce. The rise of B2C over B2B is being driven by the fact that many small businesses have had to move their operations online in order to make it through the pandemic.
Even traditional businesses that relied on in-person sales are now turning to eCommerce to reach their customers. Manufacturing, healthcare, automotive, and insurance are just some of the industries that are starting to sell directly to consumers online. This new approach and innovative trends in the eCommerce industry might bring some new challenges. However, the benefits are likely to outweigh the drawbacks in the long run.
ECommerce Companies Lean More on Augmented Reality
The rise of augmented reality has been a game changer in the eCommerce industry, especially in fashion and home furnishing. This technology is being used by some of the biggest names in retail, including IKEA, Dulux, Lego, Sephora, and Nike.
AR allows shoppers to see how products would look in their homes before they buy them. This is particularly useful for items like furniture and home décor, where it can be difficult to visualize exactly how something would look in your home space.
Following the new eCommerce trends, AR has recently been used to create virtual showrooms and allow customers to try on products before they buy them. This can benefit the clothing and makeup industries, where you need to see how something looks on you before you make a purchase.
We expect to see even more retailers using AR in the next few years as the technology becomes more widespread and available to everyone.
AI Will Further Personalize the Shopping Experience
Artificial intelligence is already being used by many top-rated eCommerce platforms to personalize their customers’ shopping experiences. This is one of the latest eCommerce trends, and it helps businesses learn about customers’ individual preferences and use that information to recommend products based on a customer’s past purchases, browsing history, and search queries.
This technology is also being used to create dynamic pricing models that automatically adjust prices based on demand, competitor prices, and other factors. AI can also be used to help businesses manage their inventory and fulfill orders more efficiently.
In the future, AI is likely to become even more involved in the eCommerce experience. It will be used to provide customer support, process orders, and handle returns. We may even see robots being used to pick and pack orders in warehouses.
The use of AI will enable eCommerce shoppers to have a more personalized and convenient experience. It will also allow businesses to save money on labor costs.
Chatbots Will Become More Common
Today, customers expect their online shopping experience to be streamlined, so when they encounter a bottleneck or poor customer service, it’s very easy for a potential customer to abandon their cart. This means that eCommerce businesses need to find ways to speed up their fulfillment process. One way to do this is by using chatbots to automate customer service tasks.
A chatbot is a computer program that simulates human conversation. Ever since the first chatbot, ELIZA, was created in 1966, the service has been used to provide customer support, answer questions, and make recommendations. Many eCommerce businesses are already using chatbots, and we expect future trends in eCommerce to make them even more common.
For example, a chatbot can be used to answer common customer questions, provide order status updates, and take care of returns. This frees up customer service representatives to handle more complex issues.
In the future, we expect chatbots to become even more involved in the eCommerce experience. They will likely be used to handle a wider range of tasks, including processing orders and payments.
As AI becomes more sophisticated, chatbots will become more realistic and able to hold natural conversations with customers more easily.
Voice Search Will Become a Big Deal
As voice-activated assistants like Amazon Alexa and Google Home become more common, we expect voice search to become more prominent in global eCommerce trends.
Voice search allows for voice input, which is faster and often more convenient than typing.
As statistics indicate, about 75% of US households will own at least one smart speaker by 2025, making voice search an important factor in eCommerce.
As the use of voice-activated assistants grows and as they become an integral part of eCommerce’s future, we expect businesses will optimize their eCommerce sites for voice search. This means using natural language instead of keywords, including long-tail keywords that are more likely to be spoken than typed, and making sure that product pages are listed when someone searches for relevant keywords.
It will also become more critical for businesses to provide concise and accurate information on their product pages. This is because people are more likely to get frustrated with a voice-activated assistant if they have to keep asking for clarification on product descriptions.
Conventional Payment Options Will Take a Back Seat
As the world becomes more digital, we expect to see a shift from traditional payment methods to newer, more secure methods such as mobile payments and cryptocurrencies. Unlike recent B2B eCommerce trends, this one will have a more profound and lasting impact on the way businesses interact with customers.
With a variety of ways to pay for goods and services online, customers will have more choice and flexibility when it comes to how they make purchases.
We expect mobile payments to become more popular as people become more comfortable using their smartphones to make transactions. Contactless payments have become common during the pandemic, and established players such as Apple Pay, Google Pay, and Samsung Pay are likely to benefit from this trend.
Cryptocurrency is another payment method that is gaining popularity, particularly among younger generations. Bitcoin payments, one of the major new trends in eCommerce shopping, have been on the rise lately. As more people become aware of cryptocurrency and how to use it, eCommerce customers will have more options when it comes to how they make payments.
Headless and API-Driven Commerce is Gaining Momentum
Headless commerce is an architecture that decouples the back-end systems from the front-end. This allows businesses to build their eCommerce store using any programming language and framework they want.
API-driven commerce is a similar concept, but it takes things one step further by allowing businesses to connect their eCommerce store to any third-party service using APIs, a type of software that allows two applications to communicate with each other.
This eCommerce industry trend is gaining momentum because it gives businesses more flexibility and control over their stores. Companies can also get the advantage of the incorporated SEO, content marketing tools, and digital experience features. Finally, back-end developers and front-end developers can work independently of each other, which speeds up the development process.
Product Videos Will Become More Popular
As broadband speeds continue to increase and more people watch videos on their smartphones, customer engagement through product videos will continue to grow.
Short video content is a great way to show off your products in a way that is more engaging than traditional product photos. They are also a great way to showcase how your products can be used in real-world scenarios directly from your eCommerce store.
Unlike photos or descriptions, video content can quickly grab a viewer’s attention and give them an idea of what your product is all about. If you want to stay ahead of the curve, you need to start thinking about how you can use video content to showcase your products or services effectively.
Conversion Strategies Will Focus on Building Trust
In order to convert leads into customers, businesses need to focus on building trust. Multi-channel selling, Facebook advertising, and Instagram marketing are great ways to convert leads into customers, provided you focus on building trust with your target audience.
As recent online sales trends indicate, consumers are more and more skeptical of advertising and are looking for brands they can have confidence in.
This can be achieved in a number of ways, such as by displaying customer testimonials and reviews, social proof, and security seals. Another way to build trust is to offer a money-back guarantee or free shipping. This shows that you are confident in your product and that you are willing to stand behind it.
Finally, focusing on transparency (e.g., disclosing your business practices, the manufacturing process, etc.) and building a strong social media presence can also help any business in the eCommerce industry build trust with potential customers.
Big Data is a Game Changer
Big data is a term used to describe the large volume of data that businesses now have access to. This data can come from a variety of sources, such as social media, website analytics, CRM systems, and more.
Big data can be used to improve the customer experience in a number of ways, such as by personalizing the experience, identifying customer pain points, and improving customer service.
We've all experienced seeing suggestions on shopping platforms or search engines, and most of us have found them to be pretty accurate. The more data a company has, the better it can cater to its customer's needs, and this will become increasingly important in future eCommerce trends.
However, big data carries big challenges as customers are more and more concerned about data privacy. So, businesses need to make sure they are handling customer data responsibly and transparently if they want to keep using it to boost profits.
Mobile Commerce Will Continue To Grow
Mobile commerce is expected to continue growing in the coming years. According to statistics, mobile devices are used for over 40% of online transactions, their rising popularity indicates that this is one of the trends in online shopping that’s here to stay.
Mobile commerce offers a number of advantages for businesses, such as increased reach, shorter buying cycles, and improved conversion rates. It also offers many advantages for customers, including the ability to shop anywhere at any time.
If you want to stay ahead of the competition, it’s important to make sure your eCommerce platform is mobile-friendly. This means having a responsive design that looks good on all devices, as well as providing a smooth and easy-to-use mobile shopping experience.
Omnichannel Selling Will Become the Norm
Omnichannel selling is a term used to describe the practice of selling products through multiple channels, such as brick-and-mortar stores, online stores, mobile apps, and more. This eCommerce trend and approach allows businesses to reach more potential customers and provides a more seamless shopping experience.
In the past, businesses have often treated each selling channel as a separate entity. However, this is changing as more and more businesses are adopting an omnichannel approach. This shift is driven by the increasing popularity of online shopping and the need for businesses to provide a more cohesive customer experience.
As omnichannel selling becomes more common, it’s important for businesses to make sure they’re building eCommerce websites that can support it. This means having a platform that is integrated with all of your other selling channels and that provides a consistent experience for customers regardless of how they shop.
Environmental Sustainability Will Play a Big Role
As we become more and more aware of the impact our consumption has on the environment, sustainability is becoming an important factor in purchasing decisions. Customers that follow new online shopping trends want to know if the products they’re buying have been ethically sourced and if the company they are buying from is taking steps to reduce its carbon footprint.
In order to stay ahead of the competition, businesses need to make sure they’re considering environmental sustainability in all aspects of their operations. This includes everything from the sourcing of materials to the packaging and shipping of products. Customers are now more willing to pay extra for sustainable products, so there is a big opportunity for businesses that are able to meet this demand.
How To Make the Best Use of ECommerce Trends
ECommerce is constantly evolving, and it can be difficult to keep up. However, by staying informed and making sure your eCommerce platform is up to date, you can ensure that your business is able to stay ahead of the competition. To make the most of the latest eCommerce developments, consider the following:
1. Keep Up With the Latest Trends
To stay on top of your game, you must be proactive and regularly seek out new information. There is a number of ways to do this, such as reading industry news, following relevant blogs and industry influencers, and attending eCommerce conferences. You can get to know what’s going on in the industry and find inspiration for your own business.
Read up on the research data and statistics that are available on eCommerce growth trends. This can help you understand the current landscape and make informed decisions about where to focus your efforts.
2. Take Advantage of Digital Tools
There are a number of digital tools that can help you improve your eCommerce business. From marketing automation software to customer relationship management systems, there’s a variety of features that can make it easier to run your business and provide a better experience for your customers. Check the data and sales figures, and invest in analytical tools so you can understand where your customers are coming from and what they are looking for.
3. Learn From Your Competitors
It’s important to keep an eye on your competitors to see what they are doing and how they are reacting to the latest eCommerce retail trends. You can learn a lot from observing their strategies and understanding their strengths and weaknesses. Should they fail, you can learn from their mistakes. If they succeed, you can try to replicate their success.
Final Words
As the global eCommerce ecosystem continues to grow and evolve, it's important to stay on top of the latest trends. Instead of leaning on traditional shopping methods, more and more consumers are turning to the internet to purchase items. Mobile phones play a big role here, as they provide a convenient way to shop on the go.
What's more, consumers are getting more comfortable with new technologies such as AI, AR, chatbots, and voice search. These eCommerce trends in technology are changing the way we interact with eCommerce platforms and retailers.
With all that said, we're confident that you now have a solid understanding of the current eCommerce landscape. Just remember to keep your eyes peeled for new trends so you can stay ahead of the curve.
FAQ
What will be the future of e-commerce?
The future of eCommerce looks bright, with continued growth and innovation. New advanced technologies such as AI, AR, voice search, and chatbots will change the way we interact with eCommerce platforms and retailers. We can expect to see more personalization, convenience, security, and a continued move towards mobile commerce and unconventional payment methods.
Is e-commerce still profitable in 2022
In eCommerce, future trends point to the fact that this way of purchasing and selling will still be profitable in 2022. In fact, it is expected to grow at a faster pace than ever before. This is due to the continued growth of the number of online shoppers and the increasing adoption of new technologies by businesses. Now is the time to get started in eCommerce if you haven’t already.
What are the 3 types of e-commerce?
The three types of eCommerce are Business-to-Consumer, Business-to-Business, and Consumer-to-Consumer. B2C is the most common type of eCommerce. In a B2C transaction, a company sells a product or service directly to a consumer.
As the latest eCommerce trends indicate, B2C is going to overtake traditional brick-and-mortar stores in the near future. The reason for this is that online shopping is more convenient and provides a wider range of choices for consumers.
Even traditional B2B industries such as manufacturing, healthcare, automotive, and insurance are now switching to B2C eCommerce to reach out to consumers directly.
More From Our Blog
As a business owner, you are likely responsible for overseeing all aspects of your company’s operations. This includes setting your own salary. This decision can be difficult to make, especially if you’re not sure what’s standard or how to determine what’s appropriate for your situation.
In this article, we’ll discuss some factors you should consider when deciding how much to pay yourself as a small business owner.
What To Consider When Setting Your Salary
Setting your own salary can be daunting, especially if you’re a freelancer or small-business owner. After all, you need to make enough money to cover your expenses and earn a profit, but you don’t want to price yourself out of the market. So, what factors should you consider when paying yourself from your business?
Business Structure
One of the first things you should consider is your company’s business structure. Are you a sole proprietor? Do you have a business partner? Are you an S corp? Your company’s business structure will affect how much money you take home and how much in taxes you need to pay.
For example, if you’re a sole proprietor, you’ll likely take home less money than if you’re running a corporation because you’ll be paying taxes on both your business income and personal income.
On the other hand, if you’re running a corporation, you’ll only be taxed for your corporate income. This means that more of your business profits will stay within the company, which can be reinvested or distributed to shareholders.
Business Expenses
Another factor to consider when paying yourself as a small business owner is your business expenses. How much does it cost to run your small business? You should consider expenses like rent, utilities, payroll, and marketing. You’ll need to make enough money to cover these costs, plus your personal living expenses.
One common mistake small business owners make is not accounting for all of their business-related expenses. Make sure you have a clear understanding of all the costs associated with running your business before you start setting your salary.
Personal Living Expenses
In addition to business-related expenses, you also need to account for your personal expenses, such as housing, food, transportation, and health care. Again, one common mistake people make is not accounting for all their personal expenses when calculating the business owner’s salary.
Industry Standards
Another factor to consider is industry standards. What do other businesses in your industry pay their employees? This will help you determine a reasonable salary for yourself as the business owner. Of course, you don’t want to undervalue your services.
Ultimately, setting your salary comes down to determining what you need to earn to cover your costs and make a profit and then finding the right balance between pricing yourself too high and too low. By taking the time to consider all the relevant factors, you can ensure that you set a fair and competitive price for your services.
How to Calculate Your Owner’s Pay
You should consider a few balance sheet items when calculating your salary as a small-business owner. These include your monthly net income, all business-related taxes and fees, and business expenses.
According to some small business revenue statistics, 86.3% of small business owners earn less than $100,000 a year. However, this does not mean you must stay within this bracket. Below are some steps you can take to get a clear picture of a small business owner’s salary and how to calculate it yourself.
Calculate Your Monthly Net Income
Your monthly net income is the total revenue your business brings in minus any taxes or fees. This number can fluctuate from month to month, so it’s important to take an average over a period of time to get an accurate number.
Next, you’ll need to subtract all business-related taxes and fees. This includes income taxes, self-employment tax, and any other business-related expenses. Once you have your monthly net income minus taxes and fees, you’ll be left with your profit.
Calculate Your Tax Savings
The next step in calculating owner pay is determining your tax savings. This includes any deductions you can take for business expenses, home office expenses, and health insurance premiums.
You can consult with a tax professional or use a tax calculator to get an accurate number. Once you have your tax savings figured out, you can add this amount to your monthly net income to get your total monthly compensation.
Calculate Your Business Expenses
The final thing you’ll need to consider when setting your salary is your business expenses, including office rent, utilities, supplies, and employee salaries. Once you know how much it costs to run your business each month, it will be easier to calculate how much to pay yourself as a small business owner.
One mistake many small business owners make is not accounting for their salary when calculating their business expenses. This can lead to severe financial problems down the road, so be sure to include yourself in the equation.
By following these steps, you should be able to come up with fair and reasonable compensation for yourself as a small business owner. Remember to avoid common mistakes, and you’ll be on your way to success.
Ways To Pay Yourself
As a business owner, you have two options: Either pay yourself a salary or take distributions from your small business. Here are the pros and cons of an owner’s draw vs. a salary.
Paying Yourself a Regular Salary
To pay yourself a regular wage, just like you would an employee, you’ll need to set up payroll for your business and withhold taxes from your paycheck. One advantage of this method is that it can help you separate your personal and business expenses and make it easier to track your business expenses come tax time.
The downside of drawing a salary is that it’s subject to payroll taxes, which can eat into your earnings. Additionally, if you have a slow month or two, you may find yourself struggling to cover your personal expenses if you’re relying solely on your business income.
An Owner’s Draw
If you are self-employed and paying yourself a salary, an owner’s draw is another method you can use. This method is often used by small business owners with irregular or variable income. With an owner’s draw, you simply draw money out of your business bank account as needed to cover your personal expenses.
One advantage of this method is that you don’t have to worry about payroll taxes. Additionally, it can give you more flexibility regarding how much money you take out of your business each month. However, one downside is that it can be challenging to track your small business expenses come tax time.
So, which method is right for you? How to pay yourself as a sole proprietor? Ultimately, it depends on your circumstances and the needs of your business. If you have a stable and predictable income, having a regular salary may be the best option. However, if your income is variable or unpredictable, an owner’s draw may be a better option.
Final Thoughts
Paying yourself as a business owner can be a tricky task. And there’s no universal rule on how much business owners should pay themselves. However, by following some simple guidelines, you can ensure that you are fairly compensated for your work without putting your business finances at risk.
What’s most important is to find a method that works for you and your business. And, of course, to avoid any common pitfalls.
By Nikolina Cveticanin ·
September 14,2022
We've all fantasized about becoming our own boss at one point or another. But for most of us, the idea of having our own business is just that—an idea. We don't act on it because we think we need too much money to get started. But how much money do you really need to start a business?
The truth is, you don't need a ton of cash to start your own venture. In fact, many businesses can be created with very little up-front investment.
Of course, the amount of money you'll need will depend on several factors, such as the type of company you want to start, the equipment and inventory you'll need, and whether you plan to rent or purchase an office or retail space.
The Cost of Starting a Business
The first step in starting any business is to calculate the initial costs. These can range from a few hundred dollars to tens of thousands of dollars and are needed to get your business up and running.
First off, this figure depends on your idea and geographical region. Since these are different for every aspiring business owner, nobody can tell you exactly how much money you need to start a business. Therefore, we’ll do the next best thing and tell you how to determine your start-up costs.
To get an accurate estimate, you'll need to consider everything from the cost of office supplies to the price of any necessary licenses or permits. Once you have a good handle on the basics you’ll need to cover, you can begin looking for ways to finance them.
Start-Up Costs for a Business
According to the US Small Business Administration, the estimated starting cost can be divided into two main categories: pre-start expenses and asset expenditures. On top of these, you've got to be able to cover all the ongoing costs your business will incur before it’s capable of standing firmly on its own. There are one-time costs, ongoing costs, necessary costs, optional costs, fixed costs, and variable costs.
Pre-Start Expenses are the one-time costs associated with getting your business off the ground, and they can range from legal fees to market research expenses.
Asset Expenditures represent the cost of any physical assets you'll need for your business, such as office furniture or manufacturing equipment.
Ongoing costs represent rent, utilities, and employee salaries, which you'll need to cover on a regular basis.
Fixed costs, such as rent or business loan payments, stay the same each month.
Variable costs, such as inventory or advertising expenses, can fluctuate monthly.
Essential costs, such as licenses and permits, are absolutely unavoidable when running a legitimate business.
Optional costs, such as consultants or workplace decorations, are not necessary but can be helpful.
These are all types of expenses to consider when starting your business. You'll need to sit down, do meticulous research, and write an estimate of all the expenses and income you anticipate. To stay safe, plan for the worst-case scenario, but hope for the best.
Common Start-Up Expenses
Whether you are planning to start a bookkeeping business or a candle-making company, success doesn’t come cheap, especially in the beginning. Here is a list of outlays practically every venture needs to take care of:
Business licenses and permits
Office space or equipment rental
Inventory cost
Insurance
Advertising and marketing
Accounting and legal fees
Employee salaries
Utilities
Website design and hosting fees
Depending on your business, there may be other one-time or ongoing costs that you’ll need to consider. To get an accurate number, remember to factor in additional costs, such as inventory, shipping, marketing, and a fund for unforeseen expenses that may pop up along the way.
Ways To Finance Your Business
It’s encouraging to know that 58% of small firms began with less than $25,000 and one-third with less than $5,000. Once you’ve done your homework, you’ll know if you’re among them.
Once you know how much capital you need to start a business, it’s time to figure out how to finance it. It's ideal if you can do it out of your own pocket, but that isn't always possible. Depending on your situation, you may need to consider creative funding methods to turn your idea into reality.
Bootstrap: This means you’ll use personal savings to finance your company. This is a good option if you have a low-risk business that can be opened with little to no money.
Crowdfunding: With crowdfunding, you’ll solicit small amounts of money from a large group of people. This is a suitable choice if you have a brilliant company concept but don't have the money to fund it. It used to be next to impossible to get funds in this manner, but today there are several excellent platforms devoted to crowdfunding that can help you quickly reach your objective.
Small-business loan: A small-business loan from a bank or credit union is the traditional source of funding for startups. However, this avenue will only be available if you have good credit and need a significant amount of money to get started. Some banks give small-business loans to people with bad credit, but their interest rate is substantially higher.
Friends and family: You may be able to cover business startup costs by asking your friends and family members to invest in your venture, either with interest or without. If you don't want to take out a loan and trust the people you're asking to support you, this is a fantastic choice.
The final three options are more appropriate when your business is already up and running, but you’re struggling to keep up with the costs or are looking to expand the scope of your operations.
Venture capitalists: If you have a high-growth business, you may be able to get funding from venture capitalists, who will finance your business with money pooled from third parties, such as investment companies or banks. If you need a lot of money and are ready to give up a portion of your company in exchange for cash, this is an excellent alternative.
Angel Investors: Angel investors are wealthy individuals who invest in businesses in exchange for equity, but unlike venture capitalists, they are using their own funds. As you can see, angel investors and venture capitalists are similar, but not exactly the same. The amounts you can get from angel investors are often smaller than those from venture capitalists, too.
Grants: You may be able to get funded by the government or other organizations. This is a good option if you have a low-income business or are working in a field that benefits the community.
No matter how you finance your startup business, it’s wise to plan for the worst-case scenario. Once you've done your research and secured funding for your idea, you'll be all set to launch your new business... or are you?
How Do You Know If You're Ready To Start a Business?
The thought of being in complete control of our work lives—and incomes!—is incredibly appealing. Luckily, it's now more possible than ever to make that dream a reality.
But before you quit your day job, here are four things to think about before becoming your own boss:
1. Are you prepared to work hard—really hard?
Running your own business is not a 9-to-5 job. It's more like a 24/7 job. You'll have to put in extremely long hours to get your business off the ground, and even once it's established, you'll still need to work constantly to keep it afloat. So ask yourself—are you prepared to work hard?
2. Do you have what it takes to be a leader?
As the boss, you'll be responsible for guiding and managing your team (if you have one). This means you'll need to have strong leadership skills. Are you up for that challenge?
3. Can you handle the stress?
Running a company is stressful, and we're not just talking about procuring the money needed to start and operate a business. Things won’t always go as planned, and you'll have to constantly deal with challenges and setbacks. So ask yourself—can you handle the stress?
4. Are you prepared to take risks?
Starting a business is a risk. There's no guarantee that you’ll be successful, no matter how well you plan or how talented you and your team may be. So ask yourself—are you prepared to take risks?
If your answer to all of these questions is "yes," then you just might be ready to become your own boss. But remember, it's not a decision to be made lightly. Be sure to do your research and plan carefully before taking the plunge.
Conclusion
Once you’ve done your research, created a detailed business plan, and factored in additional costs that may pop up along the way, you should know how much money you need to start a business. Remember that this is just a general guide, and your specific situation may require more or less capital.
So what are you waiting for? Get out there and make your dreams a reality! Who knows, you could be the next big success story on the cover of Forbes.
By Julija A. ·
March 07,2023
Many small business owners struggle to keep their business debts under control and their business on track. While a number of them have closed their businesses temporarily or permanently in the wake of the pandemic, filing for bankruptcy can help you keep your business running by providing some debt relief. Furthermore, business bankruptcy can help the business owner close up shop quickly if ceasing operations is imminent.
However, not every bankruptcy for business owners is the same. So, read on to learn what small business bankruptcy options are available for sole proprietors, partnerships, and corporations and whether you should consult a bankruptcy attorney.
When Should a Business File for Bankruptcy?
If your company has been going through a rough patch, it’s advisable to scrutinize your balance sheet and assess the extent of your debt. After a prolonged period of consistently being unable to settle its debts and expenses, a business unavoidably reaches financial status that makes bankruptcy imminent.
At that time, filing for bankruptcy helps you escape a potentially unsustainable state and protect your valuable property from being seized during the processes that accompany small business bankruptcies.
Types of Bankruptcies for Businesses
Filing for bankruptcy under Chapters 7, 11, and 13 is available for sole proprietors, while partnerships and corporations can resort to Chapters 7 and 11.
Chapter 7 is effectively a liquidation, Chapter 11 is about reorganization, while Chapter 13 is a wage earner’s plan that pertains to individuals or sole proprietorships which are the responsibility of one individual.
Bankruptcy Options for Sole Proprietors
Sole proprietors running small businesses have a few solutions when it comes to the bankruptcy process. In sole proprietorship bankruptcy, bankruptcy law regards the sole proprietor and their business as one and the same.
This also applies to married couples running the company together. In this case, personal and business assets are the subject of a business bankruptcy. The sole proprietor has the following solutions for filing bankruptcy.
Chapter 7 Bankruptcy for Small Business Owners
Many business owners that file for business bankruptcy resort to Chapter 7 since it doesn't require them to give up on everything they have. In that regard, Chapter 7 discharges certain qualifying debts, both business and personal. Most small business owners can expect the process to end within four months after they file bankruptcy.
The bankruptcy process involves giving up a particular property that the trustee in charge of your case can sell and then use those funds to settle your debts toward creditors. There are exemptions in each state that allow you to keep specific business and personal assets, such as some equity in your home, car, furniture, and work tools. Consequently, you’ll be able to start afresh after you’ve regained your footing.
Chapter 7 Bankruptcy Downside
You can bankrupt a small business with Chapter 7 and keep some necessities, but remember the following downsides of filing for bankruptcy. A Chapter 7 bankruptcy filer could lose property that is part of their estate, including their business if it is a company with valuable assets and the trustee was able to find a willing buyer.
So, if you own an attractive ongoing operation you can't protect, being compelled to turn to Chapter 7 for personal bankruptcy might not be a good idea after all.
Furthermore, Chapter 7 bankruptcy protection exempts small amounts of business assets. Thus, you're likely to lose most of them when you file personal bankruptcy as a sole proprietor.
Filing Bankruptcy Under Chapter 13 or Chapter 11 Subchapter V
Chapters 13 and 11 are small business bankruptcy options for a sole proprietorship if the business owner prefers to continue operations instead of liquidating the company. Chapter 13 (or Chapter 11 Subchapter V if the business debts exceed the Chapter 13 limit) allows you to keep your business running as long as your cash flow is adequate for all monthly payments.
In line with that, you can file for bankruptcy if your business is steady and if the bankruptcy court approves it. In turn, you'll get a repayment plan lasting between three and five years. You'll pay an assigned trustee who will transfer the funds to creditors during that time.
Chapter 13 is also a small business bankruptcy option if you have to close the company and don't qualify for Chapter 7. In this case, small businesses have three to five years to pay off business debts, and peace of mind since creditors receive financing during that time.
Bankruptcy Options for Small Business Partnerships and Corps
Due to the various disadvantages Chapter 7 involves, small business partnerships and corporations usually opt for Chapter 11. The partnership filing for Chapter 7 bankruptcy will likely lose investments, face lawsuits outside bankruptcy court, and ultimately collapse. However, filing for Chapter 7 might benefit corporations and partnerships in some cases, so let's review both types of business bankruptcies.
Chapter 11 for Settling Business Debts
While Chapter 13 is available only to sole proprietorships and individuals, the advantage of Chapter 11 is that it’s available to general or limited partnerships and limited liability companies.
A small business entity benefits from Chapter 11 in two ways. Specifically, it can continue operations while paying smaller amounts to creditors toward business debts, which are restructured along the way.
Before the bankruptcy filing, though, the company should contact a law firm and have a business bankruptcy lawyer evaluate its prospects and whether Chapter 11 Subchapter V will be worthwhile.
Chapter 7 Pros and Cons for Corporations and Partnerships
Unlike Chapter 11 bankruptcy, which provides a mechanism for businesses to continue operating, Chapter 7 bankruptcy results in the company's shutdown. Furthermore, the appointed trustee sells the company assets and sends the proceeds to creditors.
Advantages
However, Chapter 7 bankruptcy filing may benefit a failing business if it has a substantial amount of property or a considerable number of creditors. Some related advantages are:
The members don't have to sell the small business's assets themselves, leaving this delicate work to the trustees.
This process is public, which can help prevent creditors from pursuing legal action against the company declaring bankruptcy if they assume that partners wish to keep funds instead of paying their outstanding debts.
By avoiding fraud litigation and related lawsuits, partners prevent exposure to significant legal expenses.
Disadvantages
Although the trustee sells the property of the entity and distributes the proceeds to creditors, the small businesses still face some risks, including the following:
Chapter 7 doesn't exempt the partners from paying their business bills, holding them personally liable for the costs incurred.
The trustee selling company property may seek the partners' personal assets to repay the debt.
When corporations file bankruptcy at the federal court, creditors can initiate alter ego litigation, which leads to the personal liability of each shareholder for the corporation's debt.
Another potential drawback of bankruptcy for business owners is that a creditor can file complaints about inadequate handling of the small business's finances. That way, business debts can become personal debts.
Limited Liability Company Bankruptcy Filing
Filing for bankruptcy as an LLC results in a liquidation of the business's assets to pay off debts. In an LLC, the owners aren't personally responsible for company debts if they haven't guaranteed for them. Moreover, they can file personal bankruptcy to evade liability.
A struggling LLC with a plan for moving forward can file for reorganization under Chapter 11 bankruptcy. This used to be an option for large corporations only, but the Small Business Reorganization Act made Chapter 11 bankruptcy for LLC a viable alternative. It’s a good idea to consult an attorney for more information.
Bankruptcy Consultations With a Lawyer
Bankruptcies can be complicated, so the best course would be to establish a relationship with an attorney early on. That way, you get good advice and protection of your interests from the outset. Plus, it’s often a requirement that a lawyer file the case.
The business owner in bankruptcy typically receives the following services from their attorney:
Situation analysis and an estimate if a bankruptcy is the right choice
Bankruptcy process explanation
Advice on which chapter is the best option
Cost estimate and explication of the necessary steps for proceeding with the process.
Final Thoughts
In line with what we discussed in the article, Chapter 7 bankruptcy results in a company's shutdown, while Chapter 11 allows the company to reorganize and continue operating. Chapter 13 bankruptcy is for businesses with a regular income and may allow you to keep your business open while repaying your debts.
Even though these options seem pretty straightforward, they come with potential pitfalls. So, it would be best to consult an attorney to learn which bankruptcy for business debt settlement will work for your small business.
By Nikolina Cveticanin ·
September 08,2022
Leave your comment
Your email address will not be published.
There are no comments yet
