We know from years representing clients that losing a business is akin to losing a loved one. After all you put yourself and likely a lot of your finances into it. To see it fail because of the pandemic shutdown has to be a bitter pill, but sadly it is happening all over. “‘I Can’t Keep Doing This:’ Small Business Owners Are Giving Up” (NY Times, 7-13-2020. https://www.nytimes.com/2020/07/13/business/small-businesses-coronavirus.html?referringSource=articleShare
Our basic advice is the same to you as for individuals facing financial calamity: plan, don’t panic. Here are some basic do’s and don’t’s:
- DO assess and inventory your business assets. Unless assets are held in consignment or subject to restrictions in floor-plan financing, see if they can be sold in an “inventory reduction” sale. Selling off the floor always yields more money than auction. Put all the money into the business bank account. Do a basic balance sheet listing all assets and liabilities at current value, using realistic values. Try to collect all receivables, especially before shutting off the phones or website.
- DO prepare all tax returns and pay all sales and payroll taxes. Even if you cannot pay, prepare and file the returns.
- DO reach out to lawyers and accountants with experience in business restructuring, bankruptcy or wind-downs to help you analyze the options and help you answer the following questions: Do you try to restart? If so, when and what will be needed? Will the business be profitable or at least break even? If more money will be needed to save the business, ask yourself if you would buy the business as an outside purchaser at that price.
- DO explore bankruptcy, receivership, or Assignment of Creditors options, with an experienced lawyer. At the very least you want to know the risks, costs and benefits of those options before you go another route. Remember this is not about being a success or failure. It is about making the best of a bad situation, for yourself, your family, and your investors.
- DO get all important business records into a safe location, preferably off-site. Back up all computer records and keep them under your control.
- DO update all your financial records. Reconcile bank accounts. Enter all deposits, payments and financial transactions. Reach out to your accountant or bookkeeper to get all those ready for current or future tax returns.
- DO reach out to landlords, bank lenders, and key suppliers to see if they will work with you.
- DON’T not pay payroll, payroll or sales taxes if you can. There are a lot of other special situations that you will need qualified advice about.
- DON’T start up another business using money, people or assets from the business, without qualified legal advice.
- DON’T take money for yourself out of the business, except for reasonable pay for your current work.
- DON’T fail to Plan, and get needed help. The old adage “Fail to Plan, Plan to Fail” is especially true here. Believe me, the wrong steps now can come back later creating big trouble. .
This list is far from complete. DO get the right advice what to do and not do. Whatever you do, keep your head up! Many successful entrepreneurs have come back from failure. The smart ones got good advice and followed it. That is where we can help. Call us to learn more.