The languishing economy continues to ensnare more businesses, as seen in the number of business bankruptcies. More than 60,000 businesses went bust last year, the highest level in more than 15 years, according to the American Bankruptcy Institute.

Even many companies still up and running aren’t immune from the larger environment. About half of the 4,000 firms participating in a 2009 survey by Roland Berger Strategy Consultants reported difficulties in issuing new loans.

Perhaps that not surprising, given that a similar number were anticipating sales drops of more than 10 percent. To get through, about 60 percent had chopped personnel costs by more than 10 percent.

Bringing costs into line with sales is critical. However, many of these companies still will face challenges, as their operations and cash flow will be smaller than before, says Drew Koecher, head of KPMG’s U.S. restructuring group. “The right side of the balance sheet will be larger than what they can support.” That can lead to a cascade of negative events, which may devolve to bankruptcy. To manage that risk, CFOs and treasurers will want to right-size their companies’ balance sheets:

a) Try to negotiate amendments to loan covenants. That’s because an early sign of trouble often is a technical default on a loan, such as missing a leverage ratio. This can trip increasingly onerous covenants. To head off that possibility, negotiate amendments before you run the risk of noncompliance, Koecher recommends.

b) Watch the calendar. You want to know how much time before you’ve got to pay a bill(s) that could consume your cash.

c) At the same time, try to negotiate loan terms with financial partners – before your firm is bumping up against a payment that it can’t cover. To do this effectively, you need to know your business’ capital structure, earnings and cash flow, as well as the legal rights of the various debt holders. Without this insight, your ability to negotiate effectively is limited, and events are likely to overtake you.

d) Determine which are your key vendors and customers, and then talk with them. Ask for the term changes that might help your firm get through the crisis. To be sure, this means divulging the state of your business, which probably isn’t going to pretty. However, most of your business partners will have some idea that things aren’t going well, through their own research or interactions with your firm. “Often, management is just acknowledging what the business on the other side knows or sees,” Koecher notes.

e) Develop valuation estimates, and the potential recovery to the various stakeholders in the company under the different scenarios. Recognize that different stakeholders may have different investments. Some might have gotten into your business when it was cheap, and will be O.K. getting 80 cents on the dollar. Others may have bought in at higher prices, and want to get full value for their investment. “Where most fights occur is in the valuation,” Koecher notes.

f) Engage stakeholders, including investors and bankers, in discussion. Then, brace yourself. Because of the range of interests, “it takes a lot of tenacity to get to agreement between different groups,” Koecher notes.

g) Work along parallel tracks. That is, even as you’re trying to engage stakeholders in discussions with an eye toward restructuring outside the bankruptcy process, recognize that bankruptcy may be part of the solution if the creditors can’t come to an agreement. Better to develop a bankruptcy plan upfront that preserves cash and limits damage to the business itself.

h) Engage outside counsel. Sure, this may seem like the last thing a business needs to spend money on when it’s already in trouble. However, outside expertise can help the business most effectively negotiate and balance the rights of different creditors. ###