Closing Down a Business While Achieving Debt Freedom
Closing down a business is painful. It’s the loss of a dream and a loss of years of planning, dreaming and hard work. It’s an incredibly difficult time. While all the craziness is happening around you, you need to make smart decisions about how you close down the business so that you can go on to your next endeavor.
The most important thing to know is what is tied to you personally. Accounts, loans, vendors, credit cards, may be in the business name, but be guaranteed by you personally. That means that not only the business assets will be used to satisfy those debts, but your personal assets will too. It’s imperative to know what you have on your plate.
Look past the name on the card, the name of the invoice into the underlying contract. Look at the signature lines, look at the first page where the parties are named. You’re looking for your name alone, separate from the business name and/or the words “personal guarantee”. It’s very common to have personally guaranteed commercial leases, credit cards, business loans and vendor accounts. Also look for any items you have secured with your home equity, those are very important to pay attention to.
Note that if you run your business as a sole proprietor, i.e., you haven’t put in place a corporation, LLC, LLP or other entity, you are automatically personally liable for all the debt.
When a debt is personally secured, that’s one that will follow you so you need to have a plan to attack it. Consider the assets you have in your business. Can those be used to negotiate the debt? Equipment can be traded for a release of the months on a lease. Cash can be used to negotiate debts. Make a spreadsheet of your assets and debts and hatch a plan.
Keep in mind a bankruptcy is often used to clean up bad business debts. Don’t want to wait until you start your next venture. It can complicate the bankruptcy and create a significant asset that may need to be given up in the bankruptcy to pay creditors. Always clean up one business before starting the next.
As you can see, every business will be different and there are many moving pieces. Professional help is advisable to keep the closed business in the past and to be able to move onto your next entrepreneurial venture. I’m happy to help. You can contact me here.