Closing a Business

Then too, closing a business is not a pleasant subject at best, especially when most of the "experts" cannot even agree on the definitions of "closing" and "failure."

Closing vs. Failure

To most of the pundits who write about small business, a business does not fail unless it leaves a pile of creditor debt behind—otherwise it is merely a "closure." The fact that a person may have saved money for their entire life to start a business, mortgaged their home for the money, or borrowed from family and friends…then lost it all when their business "closed" apparently does not count. That is simply a closure, not a failure.

To me—other than personally retiring—"closing" a business is a business "failure." I have closed businesses in the past, and I can tell you that the battle of semantics doesn't help one little bit. You, the business owner, have lost your investment (at least)…and your dreams. Anyone that tells you "…merely closing a business cannot be called a business failure…" is a fool.

So, by my definition, most business closings are failures. But, just how does a business owner "close" their business in the most effective way?

• Don’t drag out the decision
  If you are going to try a turnaround, do it now. If you have made the decision to close your business, start as soon as you can (this also takes some planning).

  

  Set a deadline, whether it is time-based or event-based doesn’t matter, but set a specific time for “make-or-break,” or however you want to define it.

  The important thing is that you adhere to that final decision deadline and don’t fudge, or say, “Well, I almost made it, maybe if I just try for another six months or a year, things will turn around for my business and everything will work out.” No, they won’t. If you have made the decision to not do a complete turnaround program, your troubled business will not simply “self-heal"—you will soon be faced with closing a business.

  Fail Hard, Fail Fast—make the decision now.




• Sit down with your family
  Inform them of everything. Don’t hold anything back, because the worst possible thing that could happen would be for your uninformed spouse to answer the door one day and be greeted by a process server or bank representative who hands them the papers to start foreclosure proceedings on your home.

  Can you imagine the thoughts going through your spouse’s mind at that moment? You are not doing your family any favors by trying to protect them from the “scary truth.” These are times that are traumatic enough; you don’t need to add surprise and shock to your family on top of everything else going on.

  Painful as it may be…do it as soon as possible.




• Seek outside advice
  This step is never more important than when shutting down your business. There are many other entrepreneurs out there whose businesses have failed and they have already gone through what you’re about to embark on—they very likely know all about closing a business.

  Seek out some of these people and ask them to meet with you to discuss some of the pitfalls you are headed for.

  

  I should warn you that your friends and colleagues who have not gone through closing a business will only look at you with pity and offer patronizing comments because they simply do not understand what you’re going through. Talk to experienced people.

  Hopefully you have a Board of Directors or an Advisory Board to look to for advice and counsel. These people can be your strongest supporters and helpers in your shutdown efforts.

  The important thing is that you don’t have to do this with a blindfold on. You simply do not want to make any unnecessary mistakes along the way. Help and support is out there, you simply have to look for it.




• Stay behind the corporate veil
  If your business is incorporated, please do not do something stupid, like borrowing money from your withholding tax deposit to pay operational expenses (of course, you should never do this regardless of how you are organized). Closing a business, or even declaring bankruptcy, does not erase the payments due for payroll taxes, and usually sales taxes.

  You will be personally making these payments until they are paid, even if it takes the rest of your life (I once had a state bureaucrat tell me that they would follow the owners to their grave). So, don’t fool with government trust money.

  I would also recommend (although I’m sure at this point it’s too late), that you not provide any personal loans to keep your business afloat. In the event of bankruptcy proceedings, the court will likely require you to return any money paid to your loan account during the past six months or year. So, at least don’t make any payments to yourself and don’t loan any more personal money to your business.




• Develop a shutdown plan
  This step can serve a number of purposes. First, it will be a blueprint and a time schedule for closing your business that you can follow. You won’t have to just take one critical “clubbing” after another until the business is closed—you will want to take action a step or two ahead of everyone else.

  In addition, there is almost always a cash shortage and you will want some detailed information at your fingertips, as to where the cash is coming from to settle out your shut-down, and how whatever you have, or will receive, can be allocated to creditors.

  Secondly, if there is a Board of Directors involved, or a group of investors, you will be able to share with them exactly what you intend to do, when you intend to do it, and what the anticipated result will be.

  It’s best to put your plan together before you talk to your banker, investors, or creditors.

  I have prepared a sample shutdown checklist that is generic in nature, and you will have to customize it to best fit your own business and situation. You can download this Sample Shutdown Checklist here.




• Try to make everyone “whole”
  Under ideal circumstances you would have enough money show up in your shutdown plan to pay off everything your business owes, including any investors involved (especially family and friends).

  When you start your next business—and you probably will—it will be important for you to have good credit with a history of paying off all of your debt.

  If you have investors involved, you will likely need them to finance your next business. You may be surprised at how many investors have funded a new business for the same person(s) that had just emerged from closing a business.

  Unfortunately, the phrase “under ideal circumstances” may not fit your business situation. You’re probably thinking if you had ideal circumstances you wouldn’t be shutting down your business. The only advice I can give you here is that you need to do the best you can.

  This is another very important reason you should not postpone making a decision about doing a turnaround or shutting down your business. Don’t wait until you are totally out of cash before you face up to this decision.

  Even if you have to make (more) personal sacrifices yourself, it will very likely be to your advantage in the long run to try to make everyone you can “whole.”




• Your business failed—not you
  This is the single most important thing to remember when closing a business. First, you’re in pretty good company. How about associating with Henry Ford, R.H. Macy, and George Westinghouse, or more contemporarily, Paul Wenner (Gardenburger) and Anita Roddick (The Body Shop).

  Second, you should consider that in addition to the tens of thousands of “failures” reported by the government each year, there are millions of “terminations” each year that no one ever hears about. So, you see you are not alone, and you are among some pretty prestigious company.

  All of this is small consolation however, when you know that it is your baby, your creation, that has expired. Considering all you have put into your business, it is not easy separating the business from your “self”—but separate you must.

  I also want to make it very clear that although you may have made some mistakes along the way and your business failed, that does not mean that you are a failure. The people mentioned above had at least one business failure before they became successful, and I can’t believe anyone would call these people “failures.”

  

  It is important that you present your business failure in a reality-based manner. You should not say: my business failed because I’m such a lousy manager, but rather, my business failed because the market never materialized, or my business failed because my partner took my two best product developers and started their own business, or whatever really happened to your business.

  Don’t lie, and don’t put yourself down.

  But, you do have to go through the process of closing a business, so I will encourage you again to seek support from others around you who have been through the process themselves. I would also strongly recommend that you seek out some professional help that can assist you in putting some closure on the failure aspect of your business and guide you in putting the bad parts (there were also some good parts) behind you so you can move on to your next business adventure.




• Look for the next one
  As an entrepreneur it is highly unlikely you will simply look for a good 8 to 5 job and settle down to live happily ever after. Right off the bat, you are not very hirable—Human Resource people in large companies today pretty much “black list” anyone who has ever shown entrepreneurial inclinations.

  Most employers are looking for “doers,” not “thinkers.” If they believe you cannot say, “Yes, ma’am,” or “Whatever you say sir,” without offering suggestions or asking too many questions, they likely will not hire you.

  An entrepreneur’s spirit does not fit the corporate mold very well. If you are a true entrepreneur, you would die a slow and painful emotional death working in the political morass of the big corporate world.

  So, considering you are a true entrepreneur, it is important that you are always looking for a new venture. It would be great that as you are leaving your old business and turning out the lights, you are proceeding toward your next endeavor, more experienced, better educated—“smarter”—than you were the last time.

Closing a Business With Employees

One thing I haven’t mentioned is your employees, and how to handle them. Actually, they should be handled the same way you would downsize your business in a turnaround. The only difference is that everyone is leaving, including you.

So, I would suggest you just call one of your stool-in-the-middle-of-the-group meetings and present the bad news to everyone at the same time. The worst thing you could do would be to try and nibble your business down until it is all gone. Remember: “Fail Fast, Fail Hard.”

That is not to say you might not need someone (if you can afford them) to help you close the books, write the last checks, help with the yard or parking lot sale, or move the remnants to Goodwill.

However, if you are like most small-business people, you will likely look for volunteers from your friends and family to help you with the final acts of closing a business.

If you are convinced that closing your business is the right action for you, don’t put it off. Start developing your shutdown plan immediately. Fill out the Sample Shutdown Checklist as soon as possible and then quickly begin to implement the major shutdown ground rules presented in this chapter. Closing down a business is not an easy task, but then, you’re an entrepreneur, you can do it.

“It is said an Eastern Monarch once charged his wise men to invent him a sentence to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too, shall pass away.’…”

Return to Home Page "from Closing a Business"