Before mid-march 2020, several entrepreneurs invested themselves and committed themselves to the idea of building a standout company. Back then, several small-scale businesses were finally at the point of reaping fruitful results of their eternity-long struggle. While some were past their baby steps, entering the development, or more accurately, the building stage of their micro-enterprise.
And then. You know what happened: the outbreak.
It did not only overwhelm us all emotionally and mentally. But it also caused irreparable financial damage to several businesses. The loss, of course, had a greater impact on the struggling small businesses.
And the worst part? It has been nothing but damage-upon damage ever since then. These frequent spells of complete lockdown bring financial activities to a halt, leaving no room for the basic flow of money, let alone the possibility of generating profits.
By now, living through 2021, the situation has pushed these suffering startups to consider an exit plan. If you find yourself amongst these unfortunate lot of people, then you have our sincerest condolences. The least we can do to help you out in this upsetting situation is to help you figure your course of action.
Hence, below you will find a complete guide about when to close a business after a temporary shutdown.
How to determine the financial stability of your small business?
In business terminology, stability refers to the ability of a business to withstand temporary losses. These may include loss of clientele, decrease in sales, or lack of capital. To compare stability with instability, you can click here to learn about the basics of establishing a business. Now don’t get us wrong we don’t mean the exact guidelines apply to your respective area. However, the general idea behind the approach conveys the gist of our say.
Also, note that generating money and instability associate with one another such that these phenomena are not dependent on each other. Your business may be unstable, even if it manages to generate some cash.
But that brings us to a very vital question: if that’s the case, how do you know if your business is stable enough to continue operating? Or if it's on the brink of causing massive damage to your very own financial stability?
The following approaches can help you figure:
- Compare profit margin per unit with your current sales. Determine the lowest volumes of goods that must get sold to generate the lowest acceptable amounts of profits.
- Draft a cash flow budget. Determine if there’s any gap between your input (i.e., investments and payments) and output (i.e., sales and revenue.) If you identify a gap, analyze if you can bridge this or eliminate it because it could become the basis of instability.
- If you’ve got a permanent clientele, rank your customers as per your business’s dependency upon them. If your income largely depends on solely one or two accounts, then work your way towards reducing this dependency as their loss would mean a direct downfall.
- Apply the same approach to employees. In their case, however, work towards securing an employee’s position in your company rather than reducing dependency.
If you acquire alarming results for most of the evaluations above after a temporary shutdown. And if you cannot see any possibilities of improving the current status, then we have a piece of bad news for you. You have no options but to invest time in coming up with an exit plan.
Factors to Consider Before Closing Your Business
Once decided, you’ve to go about the process of closing your business through official and legal methods. First, consult with your partners and investors. If you happen to be the only sole owner of the entire business, then do your mathematical homework as well as the evaluations above to ensure that your decision has a solid base.
Secondly, approach legal authorities to inform them that you’re closing down. You can do so by filing for dissolution papers. Remember, if you skip this step, you can find yourself in immense trouble later on. The dissolution of an LLC or corporation is necessary with the legal state to bring taxes and filing requirements to an end.
Moving forth, cancels all memberships, registrations, partnerships, licenses, permits, and all relevant paperwork. Similarly, follow legal guidelines in dismissing employees. Ensure that they know about business dissolution beforehand o they can search up for another vacancy or position. Clear out all your pending payments, dues, and loans. Settle the matter with your bank when closing down.
Lastly, keep all the data of this business – be it virtually or physically – safe with yourself for at least 3-7 years. You may as well need to refer to it later when establishing a new business or in case of any complications in the future.
Video: How to Dissolve an LLC | Attorney Aiden Durham
Now, say you reached a middle ground when determining whether you should be closing down your business after a temporary lockdown. Say your evaluations tell you that your business is neither stable nor unstable. Or if it gives you a ratio between the two that makes you want to reconsider. Isn’t there an alternative way? A Plan B?
Sure, there are two options:
Wait, what?! Isn’t that risky?
Sure it is. But if your heart isn’t ready to let go of your hard work yet, we’d suggest you give it a try again. Before reopening, consider how you can modify your business approach as per current times? What can you do to make your business COVID compliant? For example, gyms can keep the equipment outside. Restaurants can offer assemble-it-home boxes, which give the user to reheat the key ingredients of food and room for hygienic compiling at home.
Make it a joint venture:
Or you can merge your business with another business in the same domain. Do your homework, compare the outputs and inputs, and determine if they can both go hand-in-hand.
Summing up, let us tell you one thing that this entire journey may blur out for you: this is not the end of the world. Sure, these are tough times, and you are giving up a venture that did not only have all your assets invested but also had a great deal of hope associated with it. But remember, doors close on you only when bigger, better, and brighter doors are to open up for you. Whether this was your first attempt at a small business or whether you have multiple small businesses, you should know that micro-enterprises are safe when it comes to losses. Although that means the same for gain (i.e., profits are relatively low too), you will be on the safer side financially.
As you close it down, take this journey as a lesson and guidance for the next. Good luck!