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OK to throw in the towel?

When winding up can be good for your future businesses

· Business Strategy,Finance,winding up,closing a business

Introduction

We really are in strange times. For some businesses new opportunities are popping up. For others, they have the reserves set a side to weather the storm.

However, the horrible truth is that for some companies, COVID, was the final nail, in a period of loss that would have seen the company end, eventually. In some ways, it was the necessary catalyst to admit defeat, or a convenient excuse to wind up.

Please don't throw good money after bad

When a company has been trading for some time at a loss and has no chance of an investor it is very likely not to be a viable business. It is tempting to see large tech companies building up huge losses, but if there are investors willing to supply funding until such time it can turn a profit, then those companies will continue.

 

So ask yourself, is the cost of continuing worth it? Will extra debt just make matters worse?

 

Would you be better off, when you look at your debts, to walk away and regroup?

I am not advocating running up debts and winding up your company every few years. Plenty do it, but the authorities eventually catch up with those who are caviller about responsibilities:). Company Law is very clear on directors responsibilities and the penalties do include prison! If you are interested in learning more about the roles and duties of a director please see below:

https://www.iod.com/news/news/articles/What-is-a-director

Do look up the roles of directors and legal requirements for your country as these do vary. However, what will be a common theme is the need to act in a responsible manner and not to act in bad faith with stakeholders - employees, creditors and tax authorities.

As long as you demonstrated you acted in good faith (keep board minutes to evidence your efforts) then you will find starting over will not be as daunting.

But it can appear worse if you kept an ailing company longer that necessary. If anything it shows a lack of commercial awareness.

Is it really the end?

You will often see companies in the news file for administration, but not necessary stop trading. Why is this? Well, there is a grey period whereby you could restructure, under the protection of Administration. Without Administration, your creditors can force your hand and take you to court to get their money. Therefore, filing gives you the breathing space to try and turn the ship around.

I am not going into all the legal steps and types, as there are plenty of other articles out there to google. However, it is important to know that the option is available if you're in financial difficulty but could see potential for improvements via restructuring and getting some breathing space from creditors.

Believe it or not, the now extremely profitable Marvels Studios (now owned by Disney) once faced the brink of insolvency back in 1996. They diversified into movies and never looked back!.

Resuscitation has flat-lined

You have tried everything. Despite the efforts of you and your team, insolvency has set in and the end in nigh. If you decide to wind up, progress to completing your companies liquidation. As mentioned above, I am not going into the technical steps for a liquidation, but just making you aware of the final step.

The next chapter?

I'm no psychologists, but I would recommend taking a break, could just be a day (everyone is different). You might want to do some volunteer work to clear your head. Or it might be the time to further your skills training. Or, you might want to spend a few years working for another company to build up your personal finances (and improve your credit rating) and plan your next move.

Do what works for you. Einstein worked in a patent office in a low level clerical role to free up his brains capacity to work on his theories.

No matter what you do and you still want to have your own businesses consider the following:

1. What were the products or services that sold the most?

2. Is there a market segment you missed out on?

3. Are there new markets opening that were not an option before?

4. Do you have a completely new idea?

5. Time to abandon retail spaces?

6. What have you learnt from the failure:

  • What could you have done differently?
  • What tools/processes could you use instead in the future?
  • Do a personal SWOT, consider what you are really good at and identify the skills you need to bring on board for the next business? 
  • Are there people you worked with you would trust again?
  • How would you structure your business differently, will you improve your customer vetting process?
  • What can you outsource instead?
  • Look at quality control measures to implement etc.

By winding up the company, you open a fresh door. You learn from mistakes and find out the people you can trust. If bad payers still come knocking on the door, be clear they now have to pay upfront. You have experience to learn from.

The take-away

There is nothing wrong with feeling guilty if you do wind up. That just means you have empathy. But keeping a failing business alive it is not going to help your mental health or that of the people that matter around you.

There are many mistakes you can learn from. By not repeating these mistakes with your next venture, you could end up employing more people, have more customers, contribute more to the economy and personally provide more for yourself and you family.

Failure is a part of life and knowing when to draw the line, regroup and chance is something many successful people have done. Take what worked well and build from there.

Tips on helping cost and profit management

If you are at the early stages of your businesses, the below might be useful resources to prevent future cash flow issues.

http://www.darrylbannon.com/blog/set-yourself-a-30-day-business-diet-challenge

http://www.darrylbannon.com/blog/when-is-a-sale-a-bad-sale

http://www.darrylbannon.com/blog/some-thoughts-on-costs

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