Every company always goes through the stages of business: start-up, development, and decline. And it is precisely when the business decline occurs that managers need to make a decision on the withdrawal of assets, payment of all debts, and closure of the company or payment of tax on investment income when selling corporate rights.
Let’s consider the situation: Company A was registered in 2010 with an authorized capital of $ 50,000. In 2020, the business became unprofitable and the company has accounts payable for goods (works, services) in the amount of $ 5 million.
The question arises, which decision is more appropriate: should I sell my business, and if so, at what cost? What to do in such situations, we will tell in this article.
- 1 Sell Or Close Your Business
- 2 Get Professional Advice Before Closing The Business
- 3 Other Solutions: Resuscitate The Business
- 4 File For Bankruptcy Or Liquidate
- 5 To Summarize
Sell Or Close Your Business
1. Selling Business
There are several conditions when the sale will be successful:
A.) Absence Of Serious Debts
The new owner buys not only the business itself but also its debts if it is an LLC. A large debt load – no one will buy the business;
B.) The Presence Of At Least Some Prospects
For example, you do not have enough money for working capital, and the reserves are already exhausted. If there were funds, everything could be fixed. But the new owner has money – so let him try his luck;
C.) The New Owner Is An Experienced Entrepreneur
Who sees that you are doing everything wrong. And the business itself is worthwhile and, with the right approach, can be profitable.
In no case should you deceive potential buyers and say that things are going great, you just lost interest in the business or are moving to another city.
Such things are found once – there are enough services on the Internet to check entrepreneurs. Even a simple check of online cash register analytics will immediately show what’s what.
The specialists of the company Websiteclosers will tell you when selling a business is the best decision.
2. Close Your Business
To understand which decision will be best for you: “close or sell your business”, you need to weigh the pros and cons.
First of all, you need to understand why your income has decreased and whether you can somehow optimize it. What to pay attention to:
● Customer traffic – has it become smaller? In many outlets, it did not sink so much.
● The average check people began to buy less or your seller is not working well and just now it became noticeable.
● Margin – can it be increased without raising prices?
The purchasing power of the population – in 2020 it fell sharply and is likely to continue to fall in 2021. Therefore, you need to ask the question: how important is your product or service to the population? Will they be able to abandon it in the near future to save money? Or will they just move to a lower segment? And will your business survive in its current form?
● Debts – how significant are they? How much can you work through?
● Digitalization – how automated is your business and do you use all available digital tools (CRM, video surveillance, messengers, ERP) to the maximum? Will one-time investments in development help keep your business afloat?
● Health – do you have enough health to work in the same mode? And in double mode? And what will happen to the business if you get sick?
● Staff – how skilled do they perform? Is it possible to reduce costs for them?
If after a detailed analysis you understand that this is the situation when you should close your business, then it is best to do it through the sale of a property. There is no point in keeping equipment for a business that you are unlikely to restart in the next 1.5 years.
Get Professional Advice Before Closing The Business
Even if your business is only marginally profitable, have a professional business broker take a look at it. You may not see the value, but a good broker will be able to.
Other Solutions: Resuscitate The Business
Do not rush to close or sell the business, try to change something first. There are enough ways to increase sales without money:
1. Change The Staff
Perhaps sales managers are working so badly that customers do not want to buy from them. If most buyers fall off at the stage of communication with the manager, then something is wrong and the employees do not take out;
2. Optimize The Site
There are many little things that directly affect sales. An inconvenient menu, an excess of widgets and pop-ups, or even the absence of an address and phone number can repel a certain percentage of customers;
3. Organize The Accounting
If it is kept haphazardly or not at all, you will not even be able to adequately assess where the money goes. You can turn a blind eye to discipline, but everything should be strict with accounting – penny to penny;
4. Review The Tax Regime
When it is chosen incorrectly, you can go broke on taxes. Or maybe you do not record all expenses and do not reflect them in the declaration?
We recommend that you analyze the possible options for transforming your business because there are always at least two options. The only thing that in such cases can stop an entrepreneur from moving forward is emotional fatigue from his niche.
File For Bankruptcy Or Liquidate
Liquidation is preferable, especially for individual entrepreneurs. The bankruptcy of an individual entrepreneur is, in fact, the bankruptcy of an individual, that is, you.
This is a stigma for a long time: you will not be able to do business for 3 years, take loans, and you can also lose the personal property. It is better to avoid this by any means.
In the bankruptcy of a legal entity, the founders risk less – at least they are not liable to creditors with personal property. But this does not mean that you should go bankrupt at the first opportunity. It makes sense if there are so many debts that you will not pay them. If it is possible to close the obligations – choose a simple liquidation.
the main thing is to foresee the possibility of failure at the very beginning of the project and make a clear plan of action for this case. This is an ordinary working moment that will insure you against critical situations when everything is bad and it is not clear what to do.
And we hope that all the advice given in the article will help you decide what is best for you: selling or closing the business.