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Is closing your business the right choice?

There are many reasons to consider shutting your business. Explore the alternatives, from selling up to finding ways to turn around your finances. 

Before making the big decision to close down, take the following steps:

Focus on finances

The first step is to gather all your financial documents. This will help you — and an advisor — see the true picture. If you owe people money, a detailed breakdown will also help prevent disputes.

Money troubles

If this is your reason for thinking about closing down, the best thing to do is take action. Ignoring problems won’t make them go away.
The amount owed can determine your next steps, including:

  • Rejigging your budget: With a true picture of your debts and cash flow, you can better assess how you could repay debts.
  • Devise a repayment plan: This will be a good starting point when talking to creditors. 
  • Combining your debts: Juggling multiple debts can be tricky — and expensive if you’re also running up credit card bills. Consider rolling all your debts into one loan taken on by a bank or finance institution, known as debt consolidation. You’ll be charged one interest rate and deal with one party, who can help you plan realistic repayments. 

Business debt (external link)  — Insolvency and Trustee Service

Do get advice from a professional and talk to any creditors.

Do get advice from a professional and talk to any creditors.

Your next step is to get sound advice from a financial professional, eg an accountant, bank manager, business mentor or a business turnaround advisor.

Gather all the information you can about your finances and any difficulties you’re facing. The more your advisor knows, the more they can help you.

If you’re simply ready to move on from your business, they can identify alternatives to closing down and help you get ready for the next step, eg selling your business

If you’re in financial difficulty, they can help you see where things went wrong and how to get back on track.

The best way out of debt is to pay it off — even bit by bit will help.

The best way out of debt is to pay it off — even bit by bit will help.

Talk to creditors

Paying off debts can seem like an impossible task when you have more money going out than coming in. But if you explain your problem, your creditors may be open to a longer-term repayment plan.

Talk to them early — creditors may be less sympathetic if you leave it until you’re thinking about closing your business.

Taxes and levies

If you’re going to close your business it’s important to file your final returns and pay your taxes by the due date. If you know you can’t do this, talk to Inland Revenue (external link) as early as possible.

Explain your position and explore what support might be available. If you bury your head in the sand and don’t pay, you’ll be charged interest and may face a penalty.

The same goes for ACC levies. Contact ACC (external link) to discuss your options, eg paying in instalments.

Don’t play possum — ignoring problems will only make the situation worse.

Don’t play possum — ignoring problems will only make the situation worse.

Look at all the options

It’s important to take your time to think through the options and get good advice.
Ask yourself:

  • Do I still have the passion for my business to make it work?
  • What am I prepared to risk?
  • Will my investors and creditors back me to succeed? 
  • Can the business turn around? 

Make sure you assess all your options. These might include:

  • Selling your business: When setting a sale price, make sure you take all your assets into account, including intellectual property. And if you’re in financial difficulty, a sale might earn enough to clear your debts with some left over. See Selling your business for tips and advice.
  • Changing your business model: Look at what’s working and what isn’t. A new direction — or new emphasis on something you do well — could make a difference.
  • Seeking funding: Only do this if you have a sound plan for your business — investors and banks will not want to simply provide a bailout. Remember it takes time and effort to pitch for money. See our tips on funding types.
  • Shutting down: For some, this might be the way forward. See Closing your business for the steps involved and tips on tying up loose ends.

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