Common signs that it’s the right time to close your company
Financial reasons
Financial struggles are by far and away the leading cause of company closure, and even if you want to continue, it doesn’t always mean it’s the right thing to do. Common warning signs include:
- Cash flow problems – If bills are rising and it’s an uphill struggle to pay staff, manage debts and find enough cash to operate effectively, it may be time to draw a line under the business and try something new.
- Pressure from creditors – Dealing with creditors you cannot pay can be incredibly stressful. No one wants to be in a position where they cannot make payments, and creditor pressure and threats of legal action only make things worse.
- Limited profitability – If you’re working flat out and are still struggling to make a profit, that’s a major red flag and an indication that your business may not be viable.
- Unable to pay your debts – If your company cannot pay its debts when they’re due, it’s technically insolvent. At that point, you must consult an Insolvency Practitioner. It may be possible to rescue the company, but it could also be time to liquidate.
Business challenges
Running a business is never easy. There are always new challenges around the corner, and sometimes factors outside your control can force you to rethink your plans.
- Declining sales – A persistent drop in demand for your products or services can be difficult to reverse. It may indicate that you failed to recognise or adapt to changing external factors or consumer preferences.
- Increased competition – As an early entrant into a market, business can be good. However, rising competition can erode your market share and leave you with an unsustainable bottom line.
- Key personnel leaving – Limited companies are often built around a core team that they would struggle without. When key team members leave, it weakens the business’s foundations and they can be almost impossible to replace.
Personal reasons
There may come a time when your personal goals no longer align with the company or you want to try something new. Signs it might be time to close include:
- Health issues – Running a limited company is hard work, and the long hours, stress and inability to switch off can all take their toll. If your physical or mental health is suffering, it might be time to make a change.
- Losing the passion – When starting a business, it’s the enthusiasm and passion that drive you. If that dwindles, it can become difficult to motivate yourself.
- Time to retire – If you’re ready to retire and there’s no one else to carry the business on, selling or closing the company is the natural next step.
What should you do before closing a limited company?
If you are thinking about closing a limited company, the first step is to discuss your intentions with trusted professional advisers, family and friends. If your company is struggling financially, you should contact a licensed Insolvency Practitioner immediately.
They will assess your finances and discuss your options with you. For example, it may be possible to restructure the company to get it back on track or secure funding to access the working capital you need to overcome the financial challenges you face. There may also be informal and formal company rescue procedures they can implement to keep you trading.
If it’s in your best interests to close the company, whether that’s due to financial challenges or other reasons, think about the timing. Closing the company too quickly may leave you with unsold inventory or ongoing leases and contracts that are expensive to terminate. On the other hand, if the company is insolvent and you delay, you may incur further debts you cannot pay, which could lead to personal liability issues.
Don’t Fall Foul of Unqualified AdviceHow can I close my company?
The most appropriate company closure method for your business depends on its financial circumstances.
- Strike Off – Strike Off or Dissolution is the most cost-effective closure method for companies that can pay all their debts (they’re solvent) and have few assets to distribute to the shareholders.
- Members’ Voluntary Liquidation (MVL) – If your company is solvent and has significant retained profits or physical assets to return to the shareholders, a Members’ Voluntary Liquidation is usually the most tax-efficient approach.
- Creditors’ Voluntary Liquidation (CVL) – If your company cannot pay its debts, a Creditors’ Voluntary Liquidation will deal with them in a legally appropriate manner before the business is closed.
Are you thinking about closing your company?
If you think the time might be right to close your limited company, we can help. At Company Closure, we can assess your business, explain the options available and advise you on the most appropriate closure method. We can also close the business on your behalf. Please get in touch with our team for a free assessment or arrange a meeting at one of our offices throughout the UK.
Need to speak to someone?
With multiple offices across the UK and a vastly experienced team of business closure experts, you are never far away from the advice you need. Our Licensed insolvency practitioners provide free consultations to all directors and shareholders, and can quickly ascertain which closure method is best for your business.
We are licensed by recognised professional bodies and have helped thousands of directors over many years. Contact us today for your free company closure consultation.
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