Let’s be honest, not every business succeeds. It’s sad, but true. The end of 2018 saw an increase of more than 350 businesses applying for wind-up applications, as compared with figures from the previous period.
But liquidation or business wind-up isn’t always the end of the world. Almost every great business person has a story of their first (or even 5th or 6th) business venture that couldn’t quite get off the ground – before they found the one that did.
So, if you’re finding yourself in hot water and feeling like it’s the end, have hope! You can rise again, taking what you’ve learnt and pouring it into whatever comes next – if you handle this next bit right.
What is ‘winding-up’?
Winding-up is an option that small businesses have when they need to shut things down but fall short of the requirements for voluntary deregistration, most commonly they don’t have assets worth $1000 or more. It’s not exclusively an insolvency process (a member’s voluntary winding-up can be entered without the company being declared insolvent) rather it’s an application by which company directors or (in more dire straits) creditors including the ATO, can instigate the liquidation of the business.
Can my business be liquidated?
Liquidation, as a term, only applies to businesses operating under a company structure, ie: not sole traders or partnerships. This is because liquidation is about selling off or managing the company’s assets to pay debts.
The endgame of liquidation is the total dissolution of the business, a very different outcome to that of a bankruptcy which is technically a temporary financial state from which a sole trader or partnership could attempt to recover from. Liquidation is damage control, finding the most graceful exit to a business venture that hasn’t quite panned out.
Once the process starts moving, the actual reality of liquidation can be quite painless (okay, there’s probably a goodly dose of emotional pain, but overall, it can be less painful than you might fear). Any creditors without claim on the company’s actual assets cannot continue with legal proceedings against the business. They will get paid, but only once the liquidator (an objective, third party, responsible for managing the process) determines how to fairly split the now liquified assets amongst the creditors. It sounds scary but having a third party take the reigns can be the most efficient way to manage this new reality. They aren’t here to crucify you, they’re here to help you out of a muddled mess – perhaps saving your business reputation in the process.
But isn’t that giving up?
Making the decision to call it quits is hard. It can feel like years of hard work come to nothing – but it’s not always the case. The business world can be harsh, but if you’ve made good connections and put on a good show, taking yourself out of the game responsibly (before creditors speed up the process) signals to the industry that you’re not just another idealist who folds under pressure.
Companies can go under for all kinds of reasons, but it takes a real business mind to recognise the signs and make sure everyone gets off of the sinking ship alive – including you and your investors. As long as you don’t go down the path of muddying the waters and dodging calls, your business’ timely exit from the scene could easily be viewed as a tactical move made by someone who isn’t going to cling to the past for the sake of comfort. A well-positioned friend or partner in the industry will likely be willing to take another chance on your next big idea.
If you think your business might be headed for rough seas, want to be prepared or just want an objective third party to review your numbers, we’d love to help. You can call us on 02 6023 1700 or drop us a note via the form below.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.
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