In today’s volatile business environment, many operators are asking hard questions about whether or not their operations can remain viable in the months ahead. If you’re wondering whether or not now’s the time to shut up shop, here are the key things to consider.
One of the hardest things to ask yourself as a business owner is: when do I close my business permanently? Do I stick it out and keep trying or could shutting up shop now open me up to more opportunities in the future?
It’s easy to feel like the decision to close your business is a form of failure, but that’s not necessarily the case.
“Many business owners we see don’t want to face the harsh realities,” said Andrew Andreyev, chartered tax advisor and principal at Andreyev Lawyers.
“The world may have changed but they’re not prepared to accept that. To some extent, this is a process of ‘mourning’ what was, and it can take time to face up to,” said Andreyev.
“Unfortunately, we see a lot of business owners end up losing everything just to put off what was so obviously inevitable: the termination of employees, or shutting the doors.”
Closing down your business at the right time, in the right way, can save you money, stress and lay the right kind of groundwork for the next chapter of your business life.
On the other hand, could you just put your business on hiatus for a while and rethink your strategy? What is the best course of action for you right now?
“There are no hard or fast rules and the decision depends upon the individual business” said Joe Kaleb, chartered accountant and small business advisor at AustralianBiz. “For example, many restaurants and retail outlets have ramped up their online strategies to generate sales.”
Let’s take a look at some of the ways you can turn these hard questions into an easy road for you and your business.
If you’re not a sole-trader, there will be other people to immediately consider when making hard decisions — namely your staff.
If you’re closing your business or simply hibernating for a while, not only will you need to notify them in advance but you’ll also need to deal with any employee entitlements such as accrued leave or outstanding wages.
You may be able to ‘stand down’ employees for a period of time without actually terminating them. If you do terminate them, and you have 15 or more permanent employees (including long-term casuals) then you may also have redundancy pay issues.
Employment obligations are not always obvious, and you can save thousands by getting good legal advice before acting. Finding a lawyer that specialises in employment law and financial matters may be one of the most important acts to undertake prior to making any tough decisions.
“If you’re treading water from a cash flow perspective, that is a good sign,” said Andreyev.
“If your key clients or customers are still ordering from you, that’s great too. Look what is happening in your wider industry. If you are in industries like groceries, logistics, certain areas of healthcare and education, things might actually be sustainable or buoyant.
“Downturns do not impact businesses or industries evenly. If you’re confident that you are one of the lowest cost providers in your industry, then this may even be a chance to pick up market share.”
Contact your suppliers as soon as possible and give them all the relevant dates of what’s happening with your business. Organise to pay any outstanding supplier fees or bills while you’re at it. They may be prepared to give you ‘payment terms’ to match your collection of any outstanding debtors owed to you. After all, it’s in their best interest that you stay in business, too.
Depending on the size and type of your business, letting your customers know what you’re doing may look a bit different. Update your social media presence, send emails, post signs or have a ‘closing down’ sale.
Remember that it may be harder to reestablish your trading relationships if and when you decide it’s time to come back to life.
Kaleb recommended keeping a positive outlook too, but only if it applies to your situation.
“As your competitors are most likely to be in the same boat, it might be a sign that you shouldn’t close the doors just yet,” said Kaleb.
“If your business has operated successfully for many years, has a solid customer base and good cash flows, you should be in a stronger position when this crisis eventually subsides.”
If you have a brick-and-mortar business, check your lease agreements. You may need to continue paying rent until the end of the lease, depending on the terms of your agreement.
Contact a lawyer and have them help you negotiate a potential deferral or waiver of part of your rent under the emergency legislation introduced in each state.
Now is also a good time to consider if you need to sell your remaining stock, furniture, vehicles and even cancel your domain registrations.
In addition to paying any outstanding bills or rent, it may be time to settle your legal and tax responsibilities.
Debt can be dangerous and cause a business to never open its doors again after this crisis ends. It may be tempting to put a few costs onto a credit card but you need to have the long view so you won’t get in trouble.
“You need to ask yourself: is it worth going into debt — what is the likely payoff and when?,” Andreyev advised.
“If you already have an overdraft and no real cash reserves, then the next critical point to consider when deciding whether to close the business is if the value of your liabilities exceeds the value of your assets — based on your current balance sheet.
“Once again, do you want to go into ‘net debt’ to try and get through this?
You need to be very confident that (a) you can last until things get better, and (b) when things get better you will be able to pay back the debt.”
In terms of the right voice to listen to when considering shutting your doors, you may be thinking – do I listen to my customers or myself? Do I stick it out regardless of what people think or should I really make myself open to other ideas?
“People don’t listen to other people enough,” said Andreyev. “First, you shouldn’t be listening to the evening TV news, or the front page of the paper. That’s entertainment not news or advice.
“We go to two places for our input. The first is statistics, because these don’t lie and don’t suffer from opinion or bias. Go to the RBA website, or the ABS website, and look at current data for your industry and the economy.
“Make your own mind up where things are at and where they are heading.”
And while the decision to close down is a very personal and, often, an emotional one, Andreyev counsels business owners to pay close attention to financial data before making any decisions.
“Look at your own data and listen to it. Get all of your accounts up to date and run all the reports every day,” he said.
“Reconcile your bank accounts and credit cards. Look over your debtor list with a fine-toothed comb. If you don’t know how to do this, then get help from your accountant. This will be money very well spent.”
At times like these, it’s easy to think you’re alone in your business situation. But, chances are many of your competitors are also feeling the squeeze.
Business owners who are able to make the smartest decision for their financial futures now will be in the best position to find more opportunities for growth in the future. Whether that means closing your business or not is entirely down to your best judgement.
This article does not constitute financial advice. MYOB strongly recommends any business owner speak to an accredited accountant or other specialist advisor before making any decision to alter their operations. You can begin searching for an advisor near you via our Partner Search page.