Unfortunately for some, things don’t last forever, that can be a real blessing if you’re in a bind or could make you quite unhappy if you are on to a good thing. As with everything else, businesses don’t last forever either, if you are in the process of winding down your business, either in your own time, due to selling or, in a tight timeframe due to dissolving or, worst-case scenario, liquidation then the process needs to be done in accordance to business laws and, you should have a proper ‘exit strategy in place’. Let’s delve into the meanings and processes that you will likely need to follow;
Essentials Regardless of Your Closure Reasons
Whatever your exit strategy or reasons for winding down your business, there are a few actions you must take or, undergo in order to legally cease your involvement and responsibility in the firm. Failure to do so could mean some unexpected, usually unwanted surprises later on down the line. You must consider that almost everything you did to start your firm must be revisited and undone or settled to ensure that everything is properly closed down. Your responsibilities include the following:
- Settling any legal and financial obligations of closing a business
- Consulting with your accountant to calculate and finalise corporate income tax, and payroll accounts
- Dissolving a legal entity in the proper manner
- Putting an end to your insurance
- Completing your final year of tax returns with the help of your accountant
- Putting an end to and closing any business accounts
- Settling and closing down any banks or credit accounts
When you started your business, you probably had some help, if you still have those relationships, then use them to help you wind down your business, with any luck you went through the process of a business start-up checklist. You can use that list to ‘reverse’ or undo anything you set up at the start.
Nobody likes to even consider the idea of something like bankruptcy unless things have gotten so bad that it seems like a good idea, it really should be a last resort to closing a company and only done if there are no other options. Essentially, bankruptcy is a set of legal processes that can forgive your personal or company debts (depending upon how your business was set up) if you are unable to pay them.
Bankruptcy For Sole Traders and Partnerships
When you are the owner of a sole trading company or in a partnership with others, then you are responsible for and debt liabilities, which means that your personal assets including properties or vehicles can be taken and even forcibly removed in some cases in order to pay off any debts that are outstanding, essentially, the end result of registering one of these business types as bankrupt is the same as the if you were filing for personal bankruptcy.
If you consult the help of a professional then you could find that there are perhaps easier, softer ways to deal with the matter of debt, especially if you are an individual, you may not have to file for bankruptcy, instead, you could come to some kind of agreement with the creditors
There are actually three types of bankruptcy that are available depending upon the business’s requirements, and how it was set up;
- An Involuntary Assignment: Being petitioned into bankruptcy occurs when a creditor submits a petition in a provincial court for a receiving order against the debtor’s assets.
- A Voluntary Assignment: For the advantage of their creditors, insolvents assign all of their assets in a voluntary transaction.
- Deemed Bankruptcy: Occurs when a debtor who has begun the insolvency process fails to meet the requirements for filing a proposal for bankruptcy under the bankruptcy and insolvency act or fails to follow the provisions contained in the proposal after it has been filed and accepted by the creditors/court.
Corporation and Limited Liability Company Bankruptcy
If you own either a corporation or, a limited liability company then you cannot be held personally responsible for your firm’s obligations, your personal assets are protected against your business financial dealings However, this does not mean that bankruptcy should be taken lightly or used as a ‘get out of jail free card’, it will still have an impact on your credit report and make it more difficult to obtain financial loan approval in the future. Your credit score could even be set to 0 so, you’d have to start the whole ‘building a credit score process’ all over again but, with more difficulty.
How To Get the Process Started?
First of all, if you are sure that you want to go down this route and have checked out all of your options and what they mean whether that be company liquidation, dissolving the business or filing for bankruptcy it is crucial that you understand what they entail. Are there any similarities and, how can they affect you personally, or your future business opportunities are all questions that you should be asking yourself?
Even if you’ve got a good grasp of the meanings and understand the consequences you will still need to employ the services of a licensed, regulated professional who has the experience, ability, and drive to help you through this potentially tricky time. A quick google search for firms near you will help to give you an idea of what the different providers offer.
Are There Any Alternatives?
If you think you’ve made a decision, but aren’t sure or want to know if there are any other avenues that could be pursued then you really should consult with the legal firm you are considering using. As above, you may well find that they can help you to come to some sort of other arrangement with your creditors, helping to keep your business intact or, at least stopping you from having to declare official bankruptcy and suffering the consequences that come with it.
A Brief Overview Of The Bankruptcy Processes
Your legal representative will assist you in filling out all the necessary papers required in order to declare bankruptcy. After that point, your representative will manage all correspondence with your debtors. Once you have legally declared bankruptcy, you must take the following steps:
- Sale of assets – Your legal representative is responsible for the sale of your assets that will cover the costs of any money owed, they will also look at what can be done, if your assets do not cover the outstanding debt to the value of the monies owed by your business
- Meetings – You are usually required to attend two financial counselling sessions.
- Additional payments – You could be required to make additional payments on top of what is already outstanding.
If You Want to Sell Your Business
Unless you absolutely have to sell your firm, then don’t unless you are sure that now is the right time and that you are getting a fair price for the work that you have put in. Making a ‘knee-jerk’ decision could mean that you lose out on a potential financial gain. If anything, you should look to try and improve upon your business before you sell it in order to maximize its sale value.
Planning For Succession And Handover
Usually, business people don’t like to think about closing their firm, but succession planning (or trying to sell your business) is vital to conduct in advance of handover. If you want to understand succession, think about it as a plan for the transfer of information, skills, labour and ownership from the founder to the successor. Create a succession plan, just like you did when you began your business also consider that there are a multitude of ways to sell your firm, depending on your goals and plans:
- Vendor selection – You may already have connections with your competitors, if not, it might be a good idea to speak with them to find out if they would like to acquire your business as part of their existing business.
- Commercial brokers – Business owners can, if needed consult the services of a commercial broker whom can help you to find a buyer.
- Consolidation – Exploring industry consolidation options would be a great idea, there have been some really successful sale transfers that see the existing business enter into a new mindset, the core functions would likely stay the same but the processes and the way the business is run could look very different. For some buyers, the potential of what it could become is enough.
- Increasing market value – As mentioned above, unless you are desperate to sell, then you should spend as much time as possible to make your business as attractive as possible to potential buyers. The industry you are in will have a variety of buyers with different aspirations so, it’s important to get ‘inside the mind’ of various buyers and market your business appropriately.
Whichever route you choose to go down, you should have your exit plan well thought out, if nothing else, it will make your life a whole load easier.