It’s an agonising decision, especially if you’ve put your heart and soul into the business. But if you make the decision too late you’ll make things worse than had you pulled the pin a little earlier.

Remember there’s no shame in shutting down a business. In fact, part of being a good business owner is admitting when it’s time to stop flogging a dead horse and close an unprofitable enterprise.

Choices

If you’ve decided to close your business, there are a number of paths you can take. You can manage the process yourself (with the help of your accountant and solicitor) or you can appoint voluntary administrators, who will help you sell the business’s assets and pay down debts.

You can also go into liquidation or enter into a deed of company arrangement with your creditors, but for the purpose of this article, we’ll concentrate on doing it yourself or going into voluntary administration.

The beauty of working with voluntary administrators is that they may be able to help you trade out of your current difficulties, if your business woes are due to short term cash flow problems.

They are also experienced closing down businesses and, depending on your business experience, might help you do a better job closing the business than if you do it on your own.

Assets

Once you’ve taken the decision to close the business, you or your voluntary administrator will need to sell the business’s existing assets, things like stock, plant and even property.

Proceeds from the sale of assets will be used to pay down any debts the business has, so it’s important to maximise the sale price for your assets.

Debts

Once you’ve sold your assets you’ll have a better idea about how much money you have to pay down your debts.

At this stage, you also have to carefully consider how you’ll discharge your other liabilities. For example, unless you’re at the end of your lease, you will need to negotiate with your landlord about terminating it.

This might involve paying out the lease, an expense that can cost thousands or more.  At this point, you also have to determine and pay out any staff liabilities and consider redundancy costs as well.

When is the right time to close a business?

A company is considered to be trading while insolvent if it cannot meet its ongoing liabilities. This is different to a short-term cash flow problem, a situation in which future cash flow earnings will be able to settle liabilities.

It is illegal to trade while insolvent and directors of companies that are found to be trading while insolvent face hefty penalties.

If you think your business is at risk of trading while insolvent, contact a firm of accountants with experience dealing with insolvent companies. They will be able to help you determine if your business needs to go into voluntary administration or liquidation.

Whichever approach you take to closing your business, remember to try to take the emotion out of the decision. This can be hard, but it will help you make the right decisions for the business.

The key message is that it’s much better to be proactive about closing up the business than run the risk of trading while insolvent.