Exit Planning – Closing down your company

Exit Planning – Step 8 – Closing down your company

This is the eighth and final newsletter in our series on planning for your exit.  In the last three months we covered the trade sale, the management buy-out and the family transfer.

This month we consider what to do if you come to the conclusion that your company is not saleable.

If you would like further information on selling your company or closing down your company, please click here.

James Hunt and the team at
Everyman Legal

Closing down your company in an effective way

The closure of your business

It was Margaret Thatcher who coined the phrase, ‘You can’t buck the market.’  When considering what to do with your company on your retirement, a key factor will be your judgement of the market and how you expect it to develop in the coming years.

A skilled salesman once remarked to me that you sell products or services on the basis of one of four things:

Price: for a small company, trying to compete on price is death.  So if the product or service you are selling has become a commodity where sales are made on the basis of price alone, where margins have become really low and there is little or no profit, there is perhaps no alternative but to close your company, or at least to restructure it  significantly.

Innovation: the market will pay a premium price for an innovative new product provided it is well marketed.  So, instead of closing down, can you find a new way to package and sell your product or services or exploit your know-how in a new market where high margins can be earned?

Efficiency: instead of closure can you find ways to make your business highly efficient thereby increasing your margin?

Love of the customer: in a highly competitive market the customer will seek out those suppliers who show that they really care.

But perhaps you have reached the conclusion that no matter what you do the market is too tough to be able to make a sustainable profit. Forty years ago I recall my father’s small retail business, selling domestic appliances.  ‘The big retailers like Comet can sell these appliances at a lower price than I can buy them at,’ my father lamented.  In his case the day of closure was delayed because he joined a buying co-operative, but for a nondescript retailer the writing had always been on the wall.

In the recent past Comet has itself been overtaken by market forces, the victim of the relentless efficiency and low-cost business model of the on-line retailer.

The key with a closure is to do it at the right time in an efficient manner.  We often see business owners who battle too long and too hard against impossible odds, perhaps lending money to their company to prop it up before the inevitable insolvency.

So how do you go about an effective closure?  Here are some points that you will need to consider:

Early planning may allow a restructuring to protect assets from creditors or allow you to improve you own position by taking security for loans you are to make or have made to your company.

Is your company solvent? (That is to say, can it meet all of its liabilities including the cost of closure?)  If it is not or may not be then you will need to consider taking professional advice from an insolvency practitioner.  In next month’s issue we cover this situation in some detail.

You may want to consider a sale of assets or part of the business with a transfer of employees to the buyer as a way of reducing closure costs such a redundancy and notice period remuneration.

You will need to take employment advice on the procedures to be followed.

You should look again at any bank guarantees that you have given.  Depending on the seasonality of your business and general cash flow constraints it may be possible to improve your own position significantly if you time the closure carefully.

There may be difficult emotional challenges for you and your family in all of this.  The key is to have a trusted lead adviser who can provide professional guidance but in a way that recognises the personal issues that will be involved.

Hints and Tips

Consider the overall prospects of your market before deciding to close;

Plan your closure carefully. Good timing may reduce your costs;

Take specialist advice to achieve an efficient closure.