Shut Down your Business Properly to Avoid Further Financial Troubles
Starting a new business can be a risky venture that may involve a lot of sacrifices. Sometimes a new business may not work out for a variety of reasons, and shutting down is the only feasible option.
As difficult as the decision may be, closing up shop may be the only way to protect what is left of your assets without going deeper into debt. Your credit could be impacted, which could also affect your ability to obtain financing in the future. In this blog post, we discuss some things to keep in mind in terms of financials when you are forced to shut down a business.
As a sole proprietorship, you are personally liable for the debts owed by your business. Negotiating a repayment plan for your debt with your current financial institution could be beneficial as it would increase your chances of borrowing from that same institution in the future. If you are unable to pay these debts, an alternative solution is to open a bank account with another bank that you currently do not owe any debt to. By doing this, it will give you an opportunity to begin rebuilding your financial reputation and increase your ability to obtain financing in the future. Opening a separate bank account with another financial institution that you do not owe any debt to is always good practice.
As an incorporated business, you may have signed personal liabilities as a director of the company. This includes any debt owing to the government for payroll deductions and government sales tax (GST). You would also be liable for any personal guarantees that you may have with other financial institutions or suppliers of the company. By negotiating with the lenders, this could open doors for obtaining financing in the future should you decide to start a new venture again.
The best thing you can do as a business owner is to maintain open communication and transparency with your accountant and/or bookkeeper. This will allow you to be better prepared should your business activities start to decline. By being proactive, you will minimize any future financial struggles.
It is also a good idea to talk to your lenders about the impact that your business transactions may have on your personal credit rating. If you are looking to shut down your business and cannot pay the debt or negotiate a feasible plan with your lenders, contact Exelby & Partners Ltd. (Licensed Insolvency Trustee) today to discuss your options.