When Your Passion Fades – Issues in Business Succession
April 21, 2009
Additional Points When Winding Up Your Business
1) Craft a written plan. In the plan, list everyone you do business with and everyone who cares about the future of the business. You then need to decide – who has to know, what do they need to know, when do they need to know it. Before you tell anyone, you need to calculate the impact of shutting down on your personal financial situation.
2) Unless your net business debts are very small so that they can be covered by the sale of existing assets, and there are no contingency liabilities, never just walk away.
3) If closing down, it is better to sell it as a business or to sell the assets? Is it better sold all together, or as parts?
4) Look for buyers for all of and/or parts of your business that might be attractive to other businesses. Do this BEFORE announcing you are winding down or you could have a “run” on what business remains. Do no overlook your employees as potential buyers for some, or all of, your business. Get input from a legitimate investment banker and/or business broker. Real estate brokers generally do not specialize in selling businesses and do not have experience in the nuances of selling a business. By all means, if selling real estate, use a real estate broker.
5) Contingent liabilities include items such as: unexpired leases (both real estate and equipment, making sure that if the leases are assignable that all personal guarantees are assignable as well. In the case of real estate, do the premises require restoration to a “move in” condition before selling or terminating the lease? Are there obligations to employees, etc., that may not be obvious?
6) Assets should be converted to cash at “fair market value.” Do not give favorable prices to friends and family as an attorney for a creditor could construe that sale as a “fraudulent conveyance,” opening you up to more liability and legal process.
7) Work with your advisors, succession planner, attorney and accountant to make sure you notify taxing authorities, comply with all regulations and notify other interested parties, including utilities and telephone providers. Get receipts and written proof that all filings have been made, all taxes paid and that you have a receipt for all other payments. Any tax liabilities left unpaid will become the responsibility of the owners. Such obligations cannot be discharged through bankruptcy.
8) Set a date for final cessation of your orderly liquidation.
9) Check with a records management specialist to identify what records must be retained (personally by the shareholders/owners), and what records can be destroyed. Provision should also be made to wipe all hard drives on your computers (prior to transfer to new owners). Company IP must be protected and/or sold, if saleable. Make sure to shred and dispose of all records that can be destroyed.
for part one of this series click here:
http://cli.gs/Z8tBnp Testing Your Passion – A Leader’s Responsibilities, part 1
For part two of this series click here: http://cli.gs/n7Mq07 Crafting your Business Succession Plan – My top 18 Tips
© 2005, 2009 By John J. Reddish, CMC
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One Response to “When Your Passion Fades – Issues in Business Succession”
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John- such a good post and a topic that is frequently ignored by business owners until it is too late. You’ve laid out a very clear and concise plan for business succession – great resource.
Deb