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This guide will show you how to:
Assess whether your business needs to close Close an insolvent business
Understand the implications of closing down your business
Consider your options for starting again
Exiting a failing business.
• Does your business need to close?
• Closing an insolvent business.
• Striking company off register.
• Implications of closing down your business.
Exiting a failing business and starting again.
If your business is facing difficulties, it’s important to consider your prospects and options.
Sometimes, cutting your losses and starting over may be the best way forward…
Does your business need to close?
If you’re facing serious financial difficulties, it may not mean the end for your business, just that you need to make changes.
Prepare a business forecast with the help of your accountant, and if the business has good prospects:
• identify ways of improving your cashflow
• investigate selling into new markets
• consider ways of cutting costs, even in the short term
• use a qualified turnaround specialist to improve your chances of success
If the business is unlikely to survive it’s important that you stop trading and try to pay your debts.
Continuing to trade until you run out of money will lead to insolvency, and you may be held liable for wrongful trading if you are a company or partnership.
See also:
Dealing with insolvency
Closing an insolvent business
If you can’t pay your business debts or the assets of your business are less than your debts, you are technically insolvent.
In this case you must take steps to make sure your outstanding debts are settled. You can try and do this through a voluntary arrangement. This means:
• a proposition showing how you will repay your debts is put to creditors at a meeting
• if 75% of the creditors by value agree, all creditors are bound by the agreement
Payment plans can last a long time and you won’t be able to close your business while one is in place.
Alternatively, if you’re a limited company you can:
• voluntarily liquidate the company
• be wound up by court order by any creditor owed £750 or more
If you’re an individual you can:
• declare yourself bankrupt
• be made bankrupt by any creditor owed £750 or more
In all cases:
• an insolvency practitioner will be appointed to sell assets and repay debts
• anything left over can be kept by the individual or members of the company concerned
The process of closing down – what to do and who to tell
Closing a business takes planning, time and organisation. Plan a date when you cease trading and:
• stop taking new business
• pay all of your debts
• sell your assets
• run down your stocks
• tell your employees about redundancies
• inform your bank
• inform customers and collect your debts
• inform suppliers and pay off anything outstanding
• hire professional advisors where necessary
Once you’ve closed the business:
• tell HMRC in writing within 30 days
• apply to cancel your VAT registration within 30 days
• pay any outstanding PAYE and National Insurance within 14 days
• issue P45s
• draw up a final set of accounts and final tax bill
• consider if any capital gains have been made on the disposal of shares or business assets
Striking a company off the register
A company that hasn’t traded for three months can apply to be struck off the register at
Companies House. You can’t do this if you are subject to insolvency proceedings. To get your company struck off:
• fill in the companies house form DS01 and have it signed by the directors
• pay the filing fee
• give a copy to all shareholders, creditors and employees
An advert will be placed in the Gazette to give interested parties the opportunity to object. If a valid objection is raised the company can’t be struck off.
The implications of closing down your business
The negative effects of closing your business will be minimised if you conducted your business affairs in good faith and have repaid all of your debts.
If your company was insolvent
• You won’t be allowed to become a director of or promote, form or manage a company with the same or a similar name.
• If you’re blamed for the insolvency you could be prosecuted for wrongful trading and banned from being a director for up to 15 years.
If you were made bankrupt
• You can’t be a company director during the period you are bankrupt.
• Your credit rating will be affected for many years and you may find it difficult to borrow money.
• Money that you do borrow will be subject to higher interest rates.
Starting again.
• Your options
Starting again – your options
If your business fails, it doesn’t mean you’ll fail again. A new business is a new start but it’s vital to:
• spend some time analysing what went wrong, talk to people you traded with and learn from your mistakes
• work hard to network and build a good reputation
• learn all you can about the industry, markets and customers in your chosen field
• draw up a business plan, and discuss it with as many advisors as possible
• form a projected cash flow and identify your financing requirements well in advance
• choose the right business structure for your new venture
• start slowly
A business owner with experience of an unsuccessful venture is likely to be even more focused on getting it right next time round. Be aware, however, that some of your new partners,
suppliers and customers may be curious about what happened to your last business, so it’s important to carefully manage the way you present the information:
• be positive and transparent: have a strong clear message to tell about what happened
• don’t try to hide the truth: evasiveness could generate suspicion and backfire badly when someone finds out what really happened
• turn your experience to advantage: focus on the positives of what happened and show how what you’ve learned from the experience will benefit your new customers
Useful links
HMRC: Closing or selling a business
Business Link’s closing a business checklist Dealing with insolvency
Companies House information on striking a company off the register
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