Unfortunately, some businesses will never sell. Some don’t sell because they are losing money and cannot secure enough capital to survive. Others have a fundamental flaw with the business model, and the marketplace is rejecting the products or services the business has to offer. Some companies have a combination of these symptoms.
If the decision to close a business is well thoughtout, it can make things much easier on the business owner. Though this is not the optimum situation, there are things that can be done to help the owner wind down the business and mitigate any losses.
Closing will be hard, financially and emotionally. An owner will be dealing with feelings of failure. Additionally, without a well thought out plan, an owner might have to liquidate assets quickly, which inevitability reduces their value. The more thorough your plan, the better you will be able to protect your assets and your mental health, so mapping out a good strategy is critical.
First, make a list of liabilities that the business has and that the owner might be responsible for personally. Taxes and government obligations should be looked at closely. Many of these government liabilities are carried through to the owner, and some of them have criminal penalties associated with failure to make payments. Check with your CPA and attorney to help you prioritize them and get the appropriate legal advice.
Once you have a list of the liabilities, determine how they can be satisfied. Most businesses have hard assets that possess intrinsic value. Typical hard business assets include inventory, furniture, fixtures, equipment and vehicles. These can be sold to create cash. Most will have to be sold at a discount so be realistic about what can be expected by selling these items. Depending on the type of business, certain assets will have more value.
If you have a retail shop for example, the business inventory will typically be the asset with the most value. To maximize the value he receives, a retailer should consider having a going out of business sale. These types of sales can be very effective. There are companies that for a fee will help you put on a going out of business sale. In my experience these sales are a real blessing for a retail business that has a significant amount of inventory. As one retailer I know said “if our sales were like this all the time we wouldn’t be going out of business.”
A manufacturer, on the other hand, may have inventory but also a significant amount of equipment. This type of inventory will be harder to liquidate, so contact customers and suppliers about purchasing what you may have left. Equipment can be sold at auction – again there are companies that specialize in auctioning specialized equipment.
While you are winding down the business, you should reduce every expense you can. I recommend looking at every bill you pay and assess if it is completely necessary in the short run. You have made the decision to close, so, although you may be tempted to keep things as they are, don’t.
Other contracts should be looked at as well. Most businesses have leases on the space they occupy. Review your lease. Is there a notification provision if you decide not to renew? Once you have reviewed the lease you should consider contacting the landlord and discussing your options. In today’s environment landlords have had to be somewhat flexible. You may be able to arrive at an amicable exit.
I was once involved with a restaurant that needed to close. It was in an upscale multi-story office building and was on the ground floor. The landlord was concerned that if the restaurant closed, the tenants in this upscale building would be upset and he wanted time to secure another restaurant tenant for the space. The owner agreed to remain open for an additional six months’ rent free in exchange for a release of his personal guarantee on the lease. It was a win-win. Contact the landlord and see if you can work something out. In many cases you may be able to find common ground.
In this tough economy people are faced with this choice more than ever. Hopefully, creating a plan will make a bad situation a little easier.