If your business is drowning in debt it is difficult to stay afloat. The stress and constant harassment from creditors can keep you up all night, not to mention the never-ending cycle of putting out fires. It’s tough to focus on your business when you’re constantly struggling to manage debt. Liquidation is an excellent solution to this problem. Liquidation can eliminate business debt plus you can keep on trading and keep your assets.
Take these six critical steps before liquidation to get rid of debt so that you can keep your business afloat.
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Step One: Make the decision
We can assure you that the most difficult step of a liquidation is to make the decision. It is essential to take an objective and clinical approach in this situation. Focus on the balance sheet of the company and not your emotional attachment to the business or the fears you feel. If your business cannot pay its debt and has little to no cash flow, then it is insolvent and must be liquidated. You can rather take pro-active steps towards a solution as opposed to putting out fires with no end in site.
Once the decision to liquidate is made, you can get out of the debt spiral.
Step Two: Plan the process
To ensure a smooth transition to your fresh start, you will now set a date for when your company will close down. This will give you a clear deadline to work towards. This in turn will put you back in control of your business: you can then manage creditors (Instead of them just harassing you while you feel powerless), you can make decisions with regards to clients, contracts, bank accounts, cash flow and staff. In other words, you will be active again instead of being paralyzed by inaction and fear.
Step Three: Restructuring
Once you have made the decision to liquidate, we can start to restructure your business so that you can continue trading. You can buy your assets back after liquidation, so you can keep on using them. You can retain your staff. You can negotiate with your landlord (if it is not too late!). Your cash flow will be generated by a new entity so that you can decide what to do with the cash instead of paying debt. This should get you back on your feet in no time.
Step Four: Practical steps
At this stage make a list of all your creditors. Do not shy away from the truth! Facing the facts is key. Knowing where you stand will help you make decisions. It will empower you to know that you can do something about it as it is not necessary to fear creditors any longer. Gather all the information of all creditors. Determine whether there are debit loan accounts in the financial statements. (If there are no financial statements do not bring them up to date it is not necessary). If there are financial statements, check the debit loan situation. You need to discuss that with us as we need to advise you on those. Once you have an overview of the company’s financial situation, you can manage the situation better. We will give you a step-by-step guide on how to handle what and when.
Step Five: Talk to Suppliers you want to Keep
If there are suppliers you would like to keep, you can arrange with them to start invoicing your new company. If you still owe your suppliers historical debt, make a payment arrangement with them from your new company. You can also keep your clients. You do not have to tell them that you are liquidating, it is not necessary, as you are busy with a Restructuring process and not just a liquidation. The key-word is “ Restructuring” so it will be easy to tell your clients why you are trading from a new company.
Step Six: Deal with Rental, Finance and Hire Agreements
- Property Rental: If your rental is in arrears and you want to continue to trade in the same premises, you need to have a conversation with your landlord as soon as possible. If you leave the arrears for too long your landlord might get upset and then lock you out with a rental interdict. Talk to your landlord timeously so that you can make a payment arrangement for the arrears and a new lease agreement for your new company. If your landlord is already upset with you, it is best to vacate the premises as soon as possible so that you do not get locked out by an angry landlord.
- Hire Agreements – if you hire machinery and/or equipment, decide if you want to keep the item. If you do, arrange for the rental agreement to be transferred to your new entity or your own name. If you do not want to keep the machinery and/or equipment, you need to cancel the hire agreement as soon as is possible.
- Finance Agreements – any vehicles or other assets that have been financed with a finance agreement: if you want to keep these items, you need to refinance them before liquidation. Once you liquidate a company, the contract is cancelled and the items returned to the bank. You are allowed to refinance the items as they are not the assets of the company.
- Fully paid Assets – you cannot sell assets before liquidation, but you can buy them back from the liquidator. Make a list of all the assets and decide which ones you want to keep and buy back from the liquidator.