The past few years have been tough for most businesses and even
highly experienced business people have suffered. Many a good business
that in more prosperous times could have been successful has gone to the
wall, with failure often being outside of the owner’s control.
So, when should you accept that things are not going to get better?
Unfortunately, there will not be one clear sign that tells you it’s
time to pull the plug – it will be a combination of factors. The
important thing is to be looking for early warning signs.
Early warning signs
The build up to failure maybe slow, with a combination of unmanaged
factors leading up to the final nail in the coffin, including:
- customers taking longer to pay – a day or so each month
- stock holding increasing – meaning cash is tied up in stock that may not sell
- stock is becoming obsolete and too out of date to be sold
- worse still, stock is being damaged in the stock room because of the quantity being held
- having to sell at a loss or only just covering the cost of stock and direct costs such as delivery
- not being able to pay bills within the agreed payment terms.
By this time alarm bells should be well and truly ringing, but the
key is to put effective management reporting systems in place so that
each month you are checking these figures and managing things BEFORE
they get out of hand.
It’s too late
Even with effective management systems in place showing the business
is going off course, the emotional attachment that the owner has can
mean that the warning signs are ignored. Before they know it the
business is beyond recovery and it is too late.
The tell-tale signs that this may be the case are:
- needing to pump personal funds into the business to keep it afloat
- continually drawing on money set aside to pay VAT, PAYE, income tax or corporation tax
- bills mounting up that cannot be paid – in fact, envelopes remain unopened
- the bank refusing to extend your overdraft.
The writing is on the wall and in all likelihood the owner is at the
end of their emotional tether. Even if a solution was available, many
business owners are so stressed at this point that they are unable to
function effectively.
Quitting and closing the business is probably one of the hardest
business decisions anyone ever makes. The success comes when the
business owner recognises that this is the best route to take and puts
the steps in place to close everything down.
How do you close a business?
Closing any business that does not have debts is quite simple. If it
is a sole trader or unincorporated business all you have to do is
complete the accounts, file the final returns, pay outstanding taxes,
inform HMRC of the closure and physically close the business down.
A limited company must take a few more steps, including advising
Companies House via a special form, telling shareholders, directors and
so on.
However, if a business has debts it gets more complicated and
expensive to close down the business – madness given in all likelihood
there will be no funds available.
When there are debts involved there is a legal process to follow and
it is best to seek specific advice from a specialist who can advise the
best route – especially if you operate as a sole trader or have personal
guarantees on loans through a limited company.
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