September 23, 2009

Ssshhh… my company is dying! How to properly shut down your company

I feel awful about this blog! I help companies grow their revenues, grow their profits, or reposition them to grow. But I recently had a conversation with Bob Light, the controller of a company in Virginia who is in the process of shutting down his last employer (ouch), and he told me it was a great learning experience and quite involved, so I asked him to write about it.

Here’s in hopes that none of my readers will have to implement these steps!


No one wants to talk about it too openly, but this economy is taking its toll on businesses everywhere (except those in the alcohol distribution channel, which are booming…). After the RIFs and budget cuts fail to turn the red ink into black, the board or owners ultimately decide to pull the plug.

Shutting down a company is not enjoyable, but how you do it depends on the specific circumstances. In all cases, the more time you have to plan and implement this process, the less time, money, and reputation it will cost you. I’m not an expert, thank goodness, so this is just my opinion based on going through the process recently. Here are some of the basics to consider once the decision is made to go this route:

Bankruptcy – If you don’t have to file bankruptcy, don’t. Filing bankruptcy is “noisy”, i.e., it is tracked by many agencies and published by the media. It also is expensive. If you can’t avoid it, research the “Do’s and Don’ts” in advance.

Customers – If you have them, you have outstanding AR, and may have collected money for goods/services you won’t be able to deliver. Make the tough decisions about how and when to notify customers quickly, but keep it near the end of the operations. Consider:

• Refunds of customer prepayments
• Collections after you stop operations (usually much less than your AR balance)
• Suggestions/options for a transition to another provider (this is not only appreciated, but creates goodwill for future opportunities)

Vendors / leases – You will owe money to many types of vendors, or have long term leases. Make a list of all vendors and amounts owed, both present and future, and any contract T&Cs, then:

• Terminate vendors/leases based on notice requirements (i.e., if one requires 45 day notice and one 15, make sure the 45 day one is done first). Be especially attentive to accounts that auto-renew.
• Negotiate a lower amount owed. On larger settlements, get it in writing. Sometimes providing advance warning can help with getting the amount reduced or fully credited, or at the least generate some respect and goodwill.
• Check to see if you’re entitled to a refund for money you have paid for undelivered products or services, e.g., Workers Comp.

Liquidation of Fixed Assets – The used furniture / IT equipment markets are flooded these days, so it may even cost you to liquidate. Work out a deal with an auction service which may generate some cash for you. If you are small enough, you might do it yourself via CraigsList or eBay.

Employees/Benefits – You’ll need to terminate all employee benefit plans. This can have a huge impact on previous employees, as COBRA is tied to the plan and thus is not available if the plan is cancelled. State-sponsored plans are usually shorter, but might provide some coverage. If your company is small and hanging in there, consider switching to a PEO for benefits management which may save you money as well. Your employees will be glad you did since they still would have the COBRA option.

Taxes – Make a list of all states where you are registered to transact business, withhold sales or payroll taxes, etc. All branches have specific requirements for ending the account, but most provide instructions online or via a telephone call. Most states won’t let you “exit” if you are not in good standing or owe any taxes.

Who will do it – If your CFO/accounting team isn’t up to the task, hire companies or consultants to do this. Ask your attorney or tax advisor for recommendations.

There are obviously many other things to consider, and shutting down a company is just as trying as starting one, requiring hard work, guts and follow-through. When it is over, put down the shovel, raise a toast, and then move on to your next challenge. It isn’t a crime to fail (well, maybe if you’re the Enron management), but it should be to stop chasing dreams.

Bob Light has 25 years of starting, growing, sustaining, healing, transitioning and (now) terminating small businesses across retail, service and technology verticals. Currently, the search for his next challenge tops his to-do list, preferably at a company where he doesn’t have to utilize his latest experience any time soon.

1 comment:

  1. This is an excellent list. I had the "opportunity" to do this once, and you hit on nearly everything on my checklist.

    I have one thing to add: Do not forget to examine the intangibles of the business to capture more value as you liquidate the enterprise. This includes the brand, the website name, patents or copyrights, etc. Contact customers, suppliers, and (under some circumstances) competitors, and try to capture some value from licensing the IP rights.

    The fundamental responsibility for stopping operation and liquidating the assets rests with the shareholders/owners of the firm, not the CFO. When I shut down the business, I did not have a CFO. I worked closely with the co-owner to engage with the bank to renegotiate our loan, terminated the site lease, disposed of hard assets, and did the best I could to take care of the employees.

    While this was one of the toughest 4 months of my life, the experience was invaluable.