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Closing a Business

Every day owners take the, often difficult, decision to close their business. This may be necessary due to the business reaching the end of its natural life or to the recognition that the business is no longer viable. 

Once the decision has been made the owners and/or directors must determine how to deal with the practical and financial aspects of closure and ensure that all matters are properly dealt with. 

Solvent vs Insolvent

The approach to take will depend upon whether the business is solvent – if it is able to pay off all of its debts and liabilities then it may be a solvent closure but if it is struggling with making payments and is technically insolvent then the process will have to be tailored accordingly.

The first stage of any closure process is to establish the solvency position. The business may be insolvent if:

  • Its liabilities (including liabilities that do not necessarily appear on the balance sheet such as employee redundancy costs, landlord lease claims, etc) are greater than its assets (at their realisable value);
  • The business is unable to pay its debts as they fall due; or
  • If there is legal action being taken against the business for unpaid bills.

Solvent closure

If the business is solvent then the process of closure can be commenced. 

An action plan should be prepared to establish what needs to be done and when to ensure that all loose ends are properly dealt with. If employees are involved then it is important to ensure that the redundancy process is conducted appropriately to avoid any additional liability. Legal advice or support should be considered at this stage to minimise the risk of an employee claim.

If the business is a sole trader then the process can often be dealt with by the individual concerned, however if it is a corporate entity (such as a limited (LTD) company) then there is a formal process that must be undertaken to end the life of the business.

There is a choice of process for companies to deal with the finalisation of its affairs; dissolving the business or placing the company into Members Voluntary Liquidation. Despite its name the latter of these is not like an insolvent liquidation and has certain benefits over dissolving the business.

Dissolving the business
The first stage is to deal with all of the practical and other matters associated with closure. This would include dealing with the tax aspects of closure and consideration of the use of Extra Statutory Concession C16 should there be surplus funds in the business to distribute.


Once all of the outstanding matters of the company have been dealt with then the company can apply to Companies House to strike the company off the. This can only be applied for if it has not in the previous 3 months:

  • traded or otherwise carried on business;
  • changed its name;
  • for value, disposed of property or rights that, immediately before it ceased to be in business or trade, it held for disposal or gain in the normal course of its business or trade (e.g. stock).
  • engaged in any other activity except those necessary for the closure process.

A company cannot apply to be struck off if there are any insolvency proceedings outstanding.

The strike off procedure is relatively cheap and simple however certain notice of the proposal has to be circulated to certain parties (including any creditors) who have the option to object to the strike off. Also under the existing law any creditor or other interested party who should later come to light can restore the company to the register at any time in the 20 years after strike off (this is just 2 years in the case of a Members Voluntary Liquidation). 

This can occur for a number of reasons such as an employee claim for industrial illness or a tribunal claim, a product liability claim or just due to a party being overlooked. Such claims could result in the shareholders being required to repay earlier distributions and the directors could come under scrutiny for not dealing with the closure properly and paying inappropriate dividends to shareholders. 

The strike off process is a cheap method to end the life of a business but is usually only appropriate for the simplest of cases where there is no likelihood of a creditor or interested party emerging. It should not be used if the business is insolvent.

Members Voluntary Liquidation (MVL)

This is a liquidation but without the adverse publicity where the business is solvent. Unlike insolvent liquidations there are no adverse consequences to the directors of a company successfully going through the MVL process. However, if it later emerges that the business is insolvent then there may be repercussions for the directors.

The MVL process must be handled by a Licensed Insolvency Practitioner who must follow a certain statutory process. This is usually a partnership with the existing directors/owners who would undertake certain aspects such as collecting remaining debts or selling assets with the liquidator responsible for dealing with the statutory matters and any creditors. Alternatively the liquidator can undertake the whole closure process.

MVLs are typically used in more complex cases where the shareholders and directors want peace of mind that the affairs of the company have been dealt with. 

Advantages of a Members Voluntary Liquidation

  •  There are significant tax advantages for shareholders - distributions out of a MVL are treated as a capital rather than income distribution and therefore there are often considerable tax and national insurance savings.
  • The Liquidator has Statutory powers to deal with difficult creditors such as landlords. This can result in a quicker and cheaper closure.
  • They can be a cost effective method of dealing with reconstructions and closures compared to alternatives.
  • There is some added protection from creditors or parties that subsequently come to light.

Disadvantages of MVLs

  • Speed – the process takes longer than a straight forward dissolution as the Practitioner has to follow a set process.
  • The directors will have to swear a Declaration of Solvency, which if later found to be inaccurate could result in criminal prosecution. In the event that the company is insolvent then the company will enter into Creditors Voluntary Liquidation (see below).
  • Cost – it costs more than dissolution.  The cost will depend upon the complexity of the case and whether the practitioner is only performing an oversight and statutory role or being involved in the entire closure process. MVLs typically cost between £2,000 and £10,000 however these costs are often outweighed by the benefits.

Insolvent solutions

If the business appears to be insolvent then it is important to take immediate advice from a qualified Insolvency Practitioner. This will ensure that any personal liability of the directors is minimised in the case of a company and ensure that the impact on the personal circumstances of a sole trader are dealt with effectively.

There are several insolvency options available to close the business down:

  • Company Voluntary Arrangement (CVA) – this is a formal agreement with creditors to settle the debt and is normally used by trading businesses.   However this could be used within a closure scenario to provide some breathing space for a controlled closure by management to ensure that creditors get the best return possible. Within a CVA it is normal for creditors to receive only a proportion of their debt back.
  • Administration – an Administrator may be appointed to close the business down. They would consider whether there were alternatives such as selling the business but failing that would close the business and sell off its assets.
  • Liquidation – the company could appoint a liquidator to close the business down and realise any remaining assets. 

Further details of these processes can be found at

It is important to choose an appropriate method of dealing the affairs of a closing business as the process is usually stressful enough without getting this part wrong. It is therefore important to get early free advice over the options available from a suitably qualified person and then an informed decision can be made as to the best way forward.

Building a Prosperous Business – Decision Elements

This is the first of a 5 part ezine series that have been developed to help people understand the elements (business and personal) that should be in place to drive the maximum success out of the opportunity they want to pursue – Straightforward, jargon free how tos from setup to taxes. There are no guarantees but what’s clear is that those people that are more prepared, have a plan and then take action are more likely to win by a WIDE margin.


If you are looking at a home based/internet business or really any sole proprietorship- the very first thing you need to do is spend some time determining “why”. I know you’ve probably heard other people say this but I don’t mean dreamy, spacey or “Do what you love” or anything like that. First, I don’t know what that means – I love mowing the grass to be honest, it’s therapeutic, I don’t have to think and when I’m done I get this feeling of accomplishment but is there a market and can I make $10,000 a month at it? Don’t think so.

So – why do you want to own a business? Certainly being “realistic” says that we’re in an extremely challenging economic climate and this may not be the best time to “rock the boat”. But check a little history – Ford, Carnegie, Roosevelt, Kennedy, Bush and even Google Founder Brin, made their money in times of economic weakness or depression – they saw an opportunity. Conventional wisdom keeps poor people poor, middle class people constantly stressed and squeezed and rich people richer. So follow the principles outlined in these sections one by one and get the attitude that change is possible for you.

This may sound simple but when the winds blow, as they will in any business, if you’ve built a house of cards, your business will be less than the success you wanted. Start with the BIG picture and work your way down – don’t start small and work your way up. Reason – you will let your preconceptions / assumptions about your capabilities shrink your possibilities at EXACTLY the time when you need to be open. Your “why” is the capstone or the umbrella under which everything you do operates. Whatever it is for you is great because it is yours – that’s why you can’t compare it to your neighbors and vice versa.

Quick note – simple things NOT complex things are the hardest. EVERYTHING is part of or connected to something else and you can go into a serious meltdown if you let it get to you. Like one of those Russian dolls within dolls or the internet where you can click from one site to another forever and find nothing or even like one of my more nightmarish dreams. People make things complex in their brains, get overwhelmed and shut down. Complexity means that you haven’t taken the time to break the thing down into manageable pieces, sort them out and decide how to take action. Simplicity on the other hand is tougher because it often deals with basics. So people shy away from simple questions because they require thought or commitment or personal risk. So the simplicity of “why do you want to own a business now?” actually makes you delve into what you value, what your goals, priorities are, etc. BUT by going through this process I can help you get the business side sorted out.

To find out if something is right for you – take some time – listen and learn the basics and be alert for anything that sounds too good to be true (i.e., guaranteed 15% on some hedge fund or Nigerian money). Do not be misled by “internet research” – where you read, usually the garbage, of other people’s opinions. Are they you? Do they have your goals, your life circumstances, your drive and determination? When doing any research always go to fact based sources. Take the time you need, use the principles here BUT make sure you don’t suffer from “the paralysis of analysis” and never do anything!


When determining your “Why”? Don’t go through a big philosophical debate – keep it simple. Maybe it’s as simple as “I want to stay home with my kids” or “I need pay off the car loan” but it’s clear – no ambiguity and it has a value that can be measured. It will change and grow over time but it becomes the basis for driving your attitude toward your business. It will drive how you value your business – example, if your kids are the reason you want to do a business then when your business causes you to be late for dinner or miss a baseball game – you will understand and be more comfortable with the value of the tradeoff.

After you find a good “Why” – People normally want to own a business for three reasons:

  • You may want to take control of your own future – to be your own boss because you know you’ll never get rich working for someone else and you know that your hard work right now continues to make wealthy individuals wealthier while you may struggle to make ends meet. In these challenging economic times
  • you may want to create new income because your current job could be at risk, you may need to bridge the gap between what you make and what you spend or perhaps you are just planning for your future.
  • Third, maybe you’d like to start a home based business as a way to lower your taxes by taking advantage of the phenomenal deductions available to small business operators. Could be like most of us – all three. Whichever it is for you – that’s great.


Now that you’ve built a “value proposition” for yourself – a “why” that drives your desire to own a business….”You can stay home with your kids and generate some extra money”. Whatever this is normally has a number that falls out from it – what are you making at work now or how much does day care cost or what do the extra things I want cost? Having a financial goal tied to your why is very important – it enables you to measure your progress and understand how / what opportunity may be a better fit.

When you’re taking a look at opportunities look for 3 things – if anyone tries to tell you anything else – throw up a red flag. Some people say I’m an analytical guy or a technical guy or a detail guy and most of that may be true but most of all I’m a simple guy – I like things to flow and be connected and for me to see how the dots are connected and get a clear picture – not get lost in a maze.

The three things you want to feel comfortable with in order of importance are the market, your supplier and the support systems. Everything cascades from here.


Knowing the market is the MOST important thing in starting / maintaining a business. I’m not talking about a detailed understanding of everything but a clear general knowledge that the market you’re operating in is large, growing and has the momentum to sustain new players. You could have the best product in the world but if nobody wants to buy it – you don’t have a business. I’ve seen people advertising to get into the candle business for free and make money. Does this make sense in general – what’s the size of the market, is it exploding, can you sustain a viable income stream?

In general, look for a business that is supported by demographic trends and offers a consumable product. This way you are operating in a market that is expanding rapidly and as the pie grows you can grow a business with it. In addition, with consumable products customers come back to you and you can develop referrals – lowering your costs. There are lots of major trends – we are all part of them normally. Wellness is one of those demographic shifts. It starts with two explosive trends – First – a growing and expanding population that is seeking to maintain or better their quality of life – second, an aging population that is expected to live and be active 15 to 20 years longer than previous generations. These trends together are creating a tidal wave of people all looking for products and services to maintain their health and active lifestyles – this is a huge multi-generational demographic mega trend.

In this challenging economic time – you want to be working with the trends and not bucking them, so this is probably not the right time to start a real estate or a car business from scratch.


Second – your supplier – extremely important – are you dealing with an unproven startup, or are you working with a proven market leader. Everyone in every business deals with suppliers – that is the company or companies that supply you the products, services or raw materials that you need for your business. They are also the company that will pay you / provide you discounts for products that you sell. In today’s economy this is even more important to make sure of the integrity of your supplier. If there is any way to know their financial stability – find it and look them up. Do not take internet “opinions” for fact. You don’t want to have done a great job of building your business and then find the company can’t pay for want you’ve done. They’ve suddenly disappeared or declared bankruptcy.

When assessing which supplier you want to work with in a market here are some parameters you may want to consider:

  • Brand name – are they a known quantity? If they are startup with no track record – will this make it easier or harder for you to be successful? Usually harder because you have fewer benchmarks for your customers
  • Market player – where are they in the market, how long have been in business, number of customers, where do they operate?
  • Proven financial track record – are they profitable or are they in a difficult financial position?
  • World class management & products – whose running the show? Unknowns or established business people with a clear track record of success? Who creates the products – are they qualified, have they delivered in the past? If your going to be in business these facts will give you the confidence you need when you face the market
  • Outstanding compensation system -You want your cake and eat it too. If you’re dealing with a world class opportunity there should be a world class reward structure. In another blog we’ll walk through different types of compensation and what to keep you eyes open for. Follow the numbers – not words.


Third, let’s say the market is amazing and the supplier is fantastic – can you take personal advantage of the opportunity? All the motivation, desire, drive and determination in the world won’t help you become successful if you don’t have the knowledge, techniques and a proven plan to follow.

One of the leading Tax Attorneys in the U.S. told me this. He specializes in Small Businesses and was the lead trainer for IRS agents for a number of years. He said that 80% of ALL businesses FAIL for three reasons:

  1. Not willing to work
  2. Lack of Marketing
  3. Lack of Business Training

Given this reality – what kind of infrastructure – systems, coaching and capabilities are going to be there to support you? This is the ICEBERG. This is the area where a business person will underestimate what they need to be successful and over estimate what they are willing to do.

Here are there are two things to consider – what does the Supplier offer? Examples: o Online training, o Collateral for business development, o web capabilities, o live support for product questions, o live training

And even if they offer these business platform features and more — How much is Free, what do you pay for and when do you pay? There are many enticements that a supplier may offer – so make sure to pay attention to any limitations. The support available to you from the Supplier AND the business team could be worth thousands of dollars to you and is almost certainly the difference between success and failure.

There is also an equally critical leg to support and that is support provided by the people that are recruiting you. If you are operating in any direct marketing or Multi level Marketing arrangement – anything that involves you as a distributor working with others – understand what they are providing. For some reason this is often lost on many people. Your supplier and what they provide is one thing BUT for day to day support the people who you are hooking up with are the keys to your success. This is where your coaching and mentoring happens, this where your questions get answered and where someone with real world experience gives you the goods.

This is a BIG breakdown area and why you hear people bad mouth direct marketing companies – not because the company or its products aren’t any good but because they had a poor coach that didn’t get their expectations in line with their commitment and give them the support they needed. Separate your supplier, from the group you are working with – a successful multi-billion dollar company doesn’t have the time or the resources to give you the “face” time you need to get going and maintain a business alone.

Work for yourself but not by yourself

What leverage does the team you’re working with give you? Do they provide personal, mentoring, advertising, resources, events, promotions, collateral, and training? Will they help you build your business?

Support to look for -understand your costs – if some or all of it is free – for how long? This could have a drastic affect on your decision about whether this opportunity is right for you. Examples of things we all need help with -

  • Training
  • Coaching
  • Mentoring
  • Business Planning
  • Advertising
  • Ordering
  • Inventory
  • Customer Care
  • Contact Mgmt
  • Web Sites
  • Credit card Processing
  • Lead Mgmt
  • 24 x 7
  • Events
  • Much. much more!

Low-Cost Small Business – What You Must Know

Having the freedom to do what you want and to run your own business is exciting and risky at the same time. Unfortunately many people worry about starting a new small business because the failure rate seems so high. While the statistics might look bad on the surface it’s important to look at why the numbers don’t look so good.

Keep in mind that many small business start ups are begun by people who have quit full time jobs and jumped into the deep end without creating a safety net for themselves. All it takes is one slow month financially and those people are forced to find work in a menial day job again, abandoning their dreams of owning a profitable small business. Be prepared to have some money saved up to put you through for a couple of slow months. Be aware that the money won’t start rolling in right away as you will have to make adjustments and changes so that your income will be steadier.

Don’t be like other small business owners that spent large amounts of money buying their businesses because this means paying back a large debt. Once again, they haven’t taken the time to create a safety net for themselves.

And before you even think of starting a small business, check out the zoning laws in your town or county if you intend to work out of your home at first. Some towns do not allow working at home or they may ask you to fill out an application. Some states are not as strict but other states such as California have many regulations that prove to be troublesome.

Imagine if you could create your very own business for very low cost at the same time as creating a financial safety net that allows you to avoid having big debts and avoid worrying about cash flow all the time. In reality, there are some great ways to begin a very low-cost small business and create a financial safety net for yourself at the same time. All it takes is a bit of planning, some foresight and some patience.

Low Cost Small Business Ideas

Some good examples of low cost business start ups could be to begin a cleaning business, pet sitting, dog walking or grooming service. You could also begin a book-keeping service or a party planning business. Your low-cost start up ideas do not have to be limited to the service industry though. You could very easily create a highly profitable ecommerce business and run your part-time enterprise entirely online. Selling on eBay is what many people do to supplement their income. Start small, then as you get more confidence and small successes, you will find that you will start making more money. These are just a few options and they are ideal for anyone wanting to begin a small business on a very low budget in their spare time.

Pitfalls of A Small Business

While many people have the dream of being their own boss and having the freedom to set their own working hours, the reality of owning a small business is a little different. If you haven’t taken the time to develop a bit of a business plan to give you an idea of the tasks you need to tackle at certain times of each year and you haven’t built a safety net for your financial needs, then you might find your small business becomes a drain on your energy and your spare time.

After all – you’re not just the boss in your business. You’re the book-keeper, the sales person, the receptionist, the cleaner and the laborer as well! With so many tasks to take care of, having a clearly thought-out plan will save you a lot of headaches later. If you can have a reliable family member help you with some of the tasks it will be so much easier for you to get things done.

In order to avoid some of the pitfalls of starting your own business you need to research in your niche to see what others are doing. Are they successful or are they having business problems? Check into various online forums in your niche so you see what’s going on in your chosen business. You might get some valuable tips and be able to network with others like you.

Building Your Small Business Safety Net

Before you begin any business, you should consider giving your new venture a ‘test drive’ before you actually quit your day job. This means you should take the time to see how the business fares by running it only on a part-time basis. Put aside a few hours on a weekend and use this to ‘test drive’ your business. The reason behind this part-time approach is to test customer reaction to your new business and to see whether you actually enjoy your new role as business owner or not.

As your customer base grows and your income grows you can slowly phase out your full time day job completely. Don’t do it right away as you may want to wait until at least a year of steady income from your small business. Start cautiously and learn from your mistakes. There will be successes, but there will be things that you may need to adjust so that your business runs smoothly. If you want to make your business a success, be determined and motivated as well as willing to adjust to change.