Going Out Of Business Calls For Planning

Q. In your last column you discussed some of the things that should be done if an entrepreneur suspects that his or her business is foundering. I have no suspicions. After almost four years of struggle, I know that my venture is doomed and that it is time to move on to a new phase in my life.

I read a lot about getting into business, but can find no information about getting out. Any suggestions?

A. If you’re absolutely certain that it’s time to face the music and that no measure of remediation can solve your problem, there are a few actions that you should consider in order to unwind your enterprise in a way that minimizes hurtful fallout.

First, keep a positive attitude and focus on the future. This is a business failure, not a personal failure. The true failure is the person who never tries. Once you’ve got the big picture in perspective, begin to focus on the little things that can emerge from your old venture to trip you up on your way to your new one.

Set up a record-keeping system to track all actions you take from this point on. Next, have your accountant help you collect and organize all relevant information, records and computer data.

Find all documentation regarding the firm’s ownership of real property. Catalog any assets that are off-premises. Identify any outstanding liens, warrants, judgments, tax issues, etc. Identify any intangible assets that might have value such as customer lists, trademarks, patents, and outstanding back-orders.

Before the word gets out make sure you aggressively collect all payments due you. Once it is suspected that you’re a goner, many debtors will turn into deadbeats who’ll try to wait you out.

Try to conserve as much cash as possible. Your goal is to repay all creditors the full amount they are owed, so compile a listing of everyone you owe and the amounts due. Make sure the list is complete because if a creditor is not notified, he might not be subject to a Bankruptcy Court’s decision with respect to partial settlement of claims.

Open a separate checking account that will be dedicated to handling all transactions related to the liquidation of your firm. Keep in mind, though, that in certain circumstances a bank can freeze or seize the account balances of their delinquent creditors, so your attorney might recommend choosing a bank that is not one of your current creditors.

It’s in your best interest to make all payments to creditors voluntarily to the extent possible. Remember, too, you have different classes of creditors. It is particularly important to ensure that your payroll tax and sales tax obligations are fully satisfied, since failure to do so can result in claims against you personally.

Your secured creditors also occupy a special position in the pecking order. Make sure that you know each specific entitlement they enjoy and identify those liabilities for which you have assumed personal liability.

From this point on, be careful about making payments to yourself from company funds. Withdrawals beyond reasonable compensation could be interpreted as fraudulent transfers by angry creditors.

Try not to give “preferential treatment” to any creditor, but be particularly sensitive to those creditors who are owed significant sums or who maintain aggressive credit departments or in-house attorneys.

Keep in mind your goal is to maintain a liquidation process that you control and that will ultimately provide as much to everyone as is financially and legally possible. Obviously, you’ll also want to contain the financial and reputational fallout that can impact you personally.

Whether or not bankruptcy is a wise option should be decided by an attorney experienced in business terminations and liquidations. He or she should be retained at the very beginning of the process and be kept fully informed and involved.

While it might seem inconsiderate, try to avoid a premature announcement to your employees. Once the cat is out of the bag, their productivity will drop dramatically. Prior to this announcement, conduct a complete inventory and secure all company assets and merchandise.

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