No one starts a business planning to fail, but the reality is that some business ventures do not succeed in taking root or remaining viable in the long run. That’s not always the business owner’s fault.

Business failures are sometimes the result of external influences that even experienced and savvy entrepreneurs cannot overcome.

It may not be the most uplifting aspect of your business management responsibilities, but you can save yourself a lot of personal and emotional upheaval by thinking now about how you might exit most efficiently from financial difficulties looming on the horizon. This is especially important in a middle-market community like Southern California, where the vast majority of businesses are closely held.

Such companies often rely on lines of credit from banks and commercial lenders for asset-based loans, which is credit secured by the business assets. In making loans to closely held businesses, ABL lenders commonly require them to provide personal guarantees. Translation: If the business doesn’t repay the loan in full, the owner/guarantor will be required to do so.

When the viability of the business seems at its end, business owners often convince themselves or are persuaded by others that a Chapter 11 bankruptcy filing is the only way out. However, there are non-bankruptcy alternatives that may be overlooked in the midst of the chaos. These alternatives are often less expensive and more streamlined than a bankruptcy filing.

No matter what course of action is ultimately chosen, one of the most common and potentially damaging errors during this period is the failure to create a realistic appraisal of the prospects for a successful reorganization.

If the business cannot be reorganized and ultimately ends up going under, losses that are incurred before and after the work-out effort often significantly reduce the business assets available for satisfying the loans from the bank or ABL lender.

It is, therefore, vitally important to consider your prospects for reorganization before taking any action. Prepare carefully, and you may lose only the business. Overlook this assessment and consequently miss the mark, and you may also lose personal assets or even be forced to file personal bankruptcy.

Doing damage control

If it looks likely that the business will fail even with work-out attempts damage control should be your course of action to preserve personal assets. Specifically, you need to develop a realistic game plan to protect yourself from personal loss under the terms of the guarantee.

A word of warning: If you try to tackle this process on your own, you may end up on a path that was unrealistic from the outset, only to discover your error too late in the game. You may simply be too close to the process to make the best possible decisions.

This can be an extremely important time to get the “big picture” viewpoint of an objective advisor who is very experienced in work-outs and business reorganization. He or she can help you evaluate your current situation, look at alternatives for resolution, and assist in working with lenders and other creditors to produce a realistic plan of action.

Your advisor should help you work through all the potential scenarios, including those that expose you to personal liability for the loan repayment. Even in the worst of circumstances, there may be an opportunity to limit a guarantor’s exposure.

For example, principals of a failing business may be in the best position to maximize a lender’s recovery on the collateral of the business. In such circumstances, an agreement may be reached with the lender that if a certain level of recovery is achieved, the guarantor will be released from a personal guarantee, even though the loan may not be paid in full.

Dealing with creditors

Another possible scenario is that the lender finds ample collateral coverage for its loan, but the real pressure comes from suppliers. In this case, a non-bankruptcy alternative may be to convince major suppliers to agree to a moratorium on outstanding debt and subsequently develop a repayment program. Vendors frequently tend to be more supportive than lenders because, although they may have to wait to get paid over time, the result will be a continuing source of future business.

Communication with your creditors is critical during this time. You’ll only make the situation worse by ignoring them or lying to them. You often will need their understanding and cooperation, and your honesty will tend to make your future dealings go more smoothly.

Go to them before they have to come to you. This may be common sense, but even the basics of business etiquette can be lost in the chaos of financial trouble.

While the strategy is not necessarily to “plan to fail,” in the abstract, it is important to be attuned to your business trends and make contingency plans early on if business difficulties are increasing.

A little time and effort now and swift, well-advised action during the financial crisis can often preserve the option of saving your business or, if that is not feasible, then save you from personal loss.

David Levene is a partner with the bankruptcy and financial reorganization firm of Levene, Neale, Bender & Rankin located in Century City.

Entrepreneur’s Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1759 with feedback and topic suggestions.