When closing your business is the best choice
Cash flow problems. Dwindling profits. A product or service that's out of fashion or dated. Trouble making payroll or consistently pumping money into a failing enterprise to keep it afloat.
Larry Young, an attorney with CGA Law Firm in York, said small businesses and “mom and pop” restaurants and retailers were especially vulnerable to competition, marketplace changes and shifts in consumer buying habits.
It can start with slow erosion of profitability, to breaking even, to slipping into the red, said Young. He said about 90 percent of his business is bankruptcy related.
Young noted business owners often don’t look for help until it’s too late. “They don’t see it coming … they don’t come in until the business is losing money,” Young said.
For those considering closing the doors, timing is everything and communication is paramount, said Paula K. Barrett, a partner with RKL LLP’s business consulting services group in Wyomissing, Berks County.
When the writing’s on the wall Barrett recommends these tips when considering closing a business:
Call a financial adviser, immediately followed by calling an attorney.
Consider liquidation where assets are sold. Once the decision has been made, do it quickly to maximize the return. This might include real estate or equipment. Make sure property and equipment are in good shape and maintained before showing them for sale.
Secure or set aside cash to navigate the closure. An attorney can help with bankruptcy, restructuring or liquidation proceedings.
Talk to employees - integral to getting through the process and to the last day. Evaluate a way to incentivize them to stay for the last lap, either with cash proceeds or an end payout.
Keep talking. To everyone: employees, suppliers, customers and your banker. Communicating regularly and in a manner that makes sense and is fair – without creating negative consequences – is important for a smooth closure.
“When the news gets out that a company is going out of business, customers don’t want to pay their bills,” Barrett said. That could mean additional losses if receivables can’t be collected.
Attorney Tony Sangiamo said many considerations should factor into a decision to close, as well as the best route to take. Sangiamo operates Tony Sangiamo Law Offices in York.
The decision depends on “whether the person is going to attempt a transition into another business and/or needs to maintain a business relationship with current creditors or obtain further financing,” Sangiamo said.
He said if the business was not run as a corporation and the owner is cutting ties with creditors or isn’t going to seek additional financing, consumer bankruptcy under Chapters 7 or 13 of the Bankruptcy Code is a possible way to dissolve the business and handle accrued debt.