When is the right time to close your company?

No director will ever want to admit failure and that their company needs to close. Every business owner wants to see their business thrive and enjoy success. However, naturally it doesn’t always work that way, no matter how much we might want it to. Although it might seem a bit backwards, sometimes accepting your losses and closing your company at the right time, can be far more beneficial in the long run, than clinging on and hoping for the best.

So, when is the right time? When should a business owner accept it’s better off closing things down than continuing to keep going.

The company owes more than it’s worth

If you’ve got more money going out than coming in, then it’s a business model that won’t work. However, every business has its ups and downs and there are bound to be moments, when this is the case. However, if you find yourself in a position when all of the company’s debts are greater than all of the company’s worth, then it is classed as insolvent.

When you find the company in this position, it may be easy to think that you can simply trade your way out of trouble. However, if you’re spending more money than your making, the business simply won’t ever be able to trade its way out of trouble. At this point, it would be better to close the company, get help and advice, rather than to carry on and simply rack up further debts.

Creditor pressure getting on top of you

If you don’t have a lot of cashflow coming in, then it’s likely that your creditors will be getting on your back.

If you start receiving repayment reminders, county court judgements (CCJs) or even statutory demands from creditors, then it’s definitely time to act. Creditors have every right to make these demands and can even send round bailiffs to try and get what they’re owed. CCJs can also end up staying on your campy credit file for six months, making it all the harder to attain credit. If you find yourself in this position, it’s crucial that you act quickly, whether that means being able to trade yourself out of trouble, or unfortunately having to shut the company down.

The company realistically can’t keep going

Sometimes things just don’t work out, it’s as simple as that. This can happen to businesses all the time and it’s not necessarily someone’s fault, or mistake, things just don’t work out. It could be down to financial pressures, a change in the marketplace, or even something happening within an owner’s personal life.

If it’s not always down to financial pressures, and it’s time for a businesses life to simply end naturally, it needs to close in a slightly different way. Sometimes an owner might be retiring and wants to maximise his retirement from the company, in cases like this a company would need to close via a Members Voluntary Liquidation (MVL).

So how do I actually close my company?

Primarily there are two main ways, and it will very much depend on the finances of the company and why you want to do it. If the company is solvent, you are looking to retire and the company has simply outlived it’s natural life span, then a Members Voluntary Liquidation, is the way to move forward. This will allow you to withdraw all the profits you’ve made from the company as it’s sold and stripped of its assets.

If the company is in financial distress and facing action from creditors, then the best option is a Creditors Voluntary Liquidation. This is a formal insolvency process which must be carried out by a licensed insolvency practitioner. Although there is a fee, the cost is paid before the creditors who are owed money and the practitioners fees are paid with whatever money is left remaining within the company.

In summary

Running a business is extremely hard work and sometimes it just simply doesn’t work out. For whatever reason, the worst thing any business owner can do is ignore the problems they have, ignoring any problems will only lead to much more significant issues later down the line. Sometimes it is simply better to call an end to things, before things get any worse.