It’s the last thing you want to do, but sometimes, a lack of profitability, burnout, or the inability to stay competitive in the market may, in one way or another, cause you to rethink your business strategy and decide to shut down your business.
Although this might be one of the hardest decisions you will ever have to make, it does not spell your doom. Many people have closed their businesses and started other lucrative ventures at some point in time. The key is to recognize what works and what doesn’t work for you. Keeping a failing business open is like staying on a sinking ship and refusing to acknowledge that it will eventually sink.
Once you have decided to close down, you cannot just roll the blinds, shut the doors, and then leave. There are several steps you must take to bring things to a close. Here are a few key actions to take before closing down a business.
What Are Your Exit Options?
Once you have decided that you won’t be moving forward with your business, either because you’ve found a better opportunity or because it’s no longer profitable, you have several exit strategies or options to consider.
Sell, Merge, or Succession
If your business has a well-established name in the market, someone else might be interested in taking the reins. Although it might seem hard to admit, another person might see something that you don’t see in your business venture and choose to take it over from you. In this case, you can sell your business or merge it. You will need to hire a legal expert to finalize the process for you and conduct thorough due diligence to review contracts, records, and financial statements prior to selling your business.
Scale Back
Many entrepreneurs have found it helpful to scale back their business instead of completely shutting it down. In this case, you can choose to scale back your business by closing down a few locations if you have multiple ones, reducing staff, or eliminating certain product lines to save more funds. When scaling back, some decide to pause new projects or relocate to a smaller office. All these initiatives can help reduce spending costs and prevent the need to close down the business entirely.
Liquidate
Liquidation involves converting a company’s or organization’s assets into funds to pay off its debts. Very few businesses start with the intended purpose of liquidating, but when this happens, you might need to initially pass a resolution, then appoint a liquidator and notify the authorities that you will be liquidating your business.
Declare Bankruptcy
To declare bankruptcy, you should meet with a licensed insolvency trustee to assess your financial situation. Once you do that, depending on the type of bankruptcy you declare, you might still continue to do business by receiving some protection from various forms of mounting debt. However, this does not mean that your business will recover in all cases.
How to Create a Business Closure Plan
A well-executed business plan can help you successfully shut down your business. It can also cause owners to walk away with some money and give your employees a chance to find other jobs. In such instances, you can also maintain a good relationship with investors, bankers, and vendors, which can help you in the future. So, what items should be on that plan? Consider a few.
For starters, you will need to collect the remaining accounts receivable. Accounts receivable is money a company’s customers owe for goods they have received but not yet paid for. Before you announce the closure, collect as many accounts as possible.
A well-crafted closure plan also includes officially notifying your customers so that they can return deposits for undelivered goods or services. Finally, you will need to terminate your leases, sell off any remaining inventory, pay your final taxes, and cancel all applicable licenses and permits. Including these elements in your exit strategy will help you successfully close down the business.
David Messiha | Staff Writer
