So Your Business Has Failed? So What!

Sep 11, 2015


So Your Business has Failed? So What! How To Close It And Start Another.

There’s a lot of garbage online about making it in business. The ‘make money’ niche overlaps with the ‘startup’ and ‘internet marketing’ niches.

Together these spew out a lot of gung-ho advice which is not based on experience. It’s hard to separate the golden nuggets from the sand.

You are told that if you follow the ‘7 Rules Of Whizzbang Marketing’, read Google’s SEO guidelines and genuflect at the altar of Guru Randy, you too can make $4000! Per! Month! Just! By! Blogging!!!!

You do it, and you fail? Why?

For some to succeed, others must fail. We literally can’t all be winners. It’s mathematically impossible.

– Crowded market;
– Not enough demand;
– Recession;
– Flawed execution;
– Inferior product:
– Lack of capital;
– Lack of planning;
– Bad partners;
– Not paying taxes!

These can all cause a business to struggle and die.

So, your business is on the rocks. The monthly balance sheet is in the red. You’re having to borrow money to stay afloat. You might not be able to make the next wage bill. Creditors are calling at all hours and the calls are turning nasty.

So, what to do?

Here’s an idea: kill your business. Kill it dead, NOW.

Why?

Because it’s wasting money, time and energy. A business which is surviving on credit, in expectation of a pickup, is a zombie. Cut its head off and get on with the next project.

Most successful businesses started as small successful businesses and then became BIG successful businesses. They didn’t limp along for two years on credit and low turnover and then magically come good.

“But, my staff, my creditors, my commitments, my dreams, the embarrassment, the years wasted, what of them?”, you say.

Here’s what I say:

Your staff: They can get new jobs. Paying them wages in a failing company is a form of dole. Ease them back into the labour market, rather than being forced to sack them all, by text, before Christmas. Your remaining money can be better used to start a new business.

Your creditors: a bankruptcy advisor gave an acquaintance this advice: “If you fail to pay your creditors, they will suffer, but they can keep going. If you pay them off and have no money left, you can’t start again.”

Your personal feelings: Keeping a failing business going, for pride, is stupid. Businesses fail all the time. No one cares. Look at an old photo of your high street. Who remembers the shops that used to be there 30 years ago? Hardly anyone. Move on.

The good news: The experience you’ve had with this business will help you with your new one. You won’t make the same mistakes again.

So what to do?

Contact a bankruptcy advisor. Have a chat with your accountant. Find out what your obligations are, what you can salvage and what you can let go.

Directors are not personally liable for the debts of their company, unless they have broken laws. A failed company takes it debts with it.

The main thing is you want to able to set up a new business and start again. Or go back to being an employee. No shame in that.

Not everyone is cut out to be an entrepreneur. Someone who started a business in a field, failed and then applies for a job in it will be looked on as having useful experience. You’ve ‘walked the walk’ as well as talking the talk.

So how to do it?

From GOV.uk:

 



Closing a limited company

You usually need to have the agreement of your company’s directors and shareholders to close a limited company.

The way you close the company depends on whether it can pay its bills or not.

The company can pay its bills (‘solvent’)

You can either:

– Apply to get the company struck off the Register of Companies
– Start a members’ voluntary liquidation

Striking off the company is usually the cheapest way to close it.

The company can’t pay its bills (‘insolvent’)

When your company is insolvent, the interests of the people your company owes money to (its creditors) legally come before those of the directors or shareholders.

– You must use the creditors’ voluntary liquidation process.
– Your company might be forced into compulsory liquidation if you don’t pay creditors.
– You may be able to avoid liquidation by applying for a Company Voluntary Arrangement.

 


That’s super.

Now here’s what a small, broke company should do:

You are supposed to wait 3 months after you cease trading before you write to your creditors, ‘though in practice you can do it sooner. You write to your creditors stating the company is broke and then strike off the company at Companies House. Creditor’s may object, but if it’s obvious the company is broke, then they won’t. Sending such a letter is a legal obligation.

HMRC may be your major creditor. If that is so they will automatically object to your striking-off and ultimately they will initiate winding-up proceedings through the High Court. We have read they are not particularly interested in companies with assets of less than £3,000 GBP. If there’s no money, there’s no money.

The Treasury Solicitor is supposed to deal with dissolved companies. In practice there is no agency which will hunt down defunct company assets so you could theoretically set up in business again quite quickly. We do not recommend that a company with substantial assets go down this route. Your creditors may not like it one bit, neither will HMRC or Companies House, and they may come after you.

It’s basically down to whether there’s money to be had or not. No one is going to bother squeezing a poor man, or in this case, a bust company.

You don’t need an insolvency practitioner if you’re scratching around for your rent money, either. You need a hand-out!

My point is that first-time business get scared out of their wits by going slowly bust. They get legal letters coming through the dooor. They get calls from angry creditors. They get offers of help from professionals who promise Nirvana. They think the police are going to get involved (wrong).

Business go bust all. the. time.

Some are ‘phoenixed’; a very similar company with the same directors is set up immediately after the first is dissolved. Fraud is committed when the directors transfer the assets of the failing company below their market value, before insolvency. This is illegal, but it shows the small, honest businessman one thing:

Going bust is not the end of the world.

Go for a walk, sit by a river, clear your head. Then head home and research what you can do personally to ‘get out from under’. You will get ‘the official line’ and then what actually happens in practice. It’s the latter a small businessman should do.

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