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How to close a business and deal with debt?12/4
Well folks, despite all your good advice and my best intentions, I'm getting out of the business. Been trying to make this go for 11 years now and I still can't see the light at the end of the tunnel. Did a lot of things right, and made a lot of mistakes. Better that I bail out now than lose more important things like my marriage.
As a sole proprietor I'm personally responsible for any debt from the business. I've got 5 digit debt in a line of credit plus credit card, plus a couple of leased machines that I appear to be slightly under water on. Once I find my next job, I'll spend at least the next few years paying off what I owe. Bankruptcy doesn't appear to offer much benefit.
Should I hang on to the machines and keep making payments, or sell quickly and suck up the loss?
Is there a better way to pay off the debt? Or just keep making the minimum payments over the next 5 years?
You are looking at this all wrong. A business is yours for life. Wives come and go. You would miss your business.
Hang on. 11 years is a long time. Give it to us with both barrells. What is your niche ?
"I've got 5 digit debt in a line of credit plus credit card, plus a couple of leased machines that I appear to be slightly under water on. Once I find my next job, I'll spend at least the next few years paying off what I owe. Bankruptcy doesn't appear to offer much benefit"
With that much debt, it will take a very, very long time to dig out with a regular J-O-B. This will affect you and your family for years if you bail now. You'll always wonder what could have been if you fixed the issues with the business.
Have you studied any continuous improvement methodologies like Lean manufacturing (2 second lean is a start), or the theory of constraints?
There are plenty of people on here that are willing to help.
Whatever you do, good luck in your decision. I know personally it's a difficult one.
5 figure debt is a wide range. $10K is manageable, $99K, probably not.
Not knowing your personal situation, I can't offer advice, but I can tell you that the reaction of most people who have gone bankrupt is relief. That's why it exists. Sometimes no matter how hard you try or how hard you work, it doesn't work out. If that's you, there is no shame in pulling the plug and starting over.
If, on the other hand, you are upside down because of all the vacations in Hawaii and the new his and hers BMW SUV's in the driveway, don't expect a lot of sympathy.
You need to understand how bankruptcy negotiations would go, so see a lawyer, then when you negotiate reduced or extended payments and they refuse to budge you can use words that imply bankruptcy but you never say it.
1) Pay all Federal and state and local taxes first
See a BR lawyer or your accountant for advice on how to proceed and don't use the BR word with anybody else. Even if you intend to never file, understanding what will happen if you do will give the correct tools to use to negotiate.
I grew the business 40% in 2014, took out loans and leases to support that. Finding the people to do the work was much more difficult than making the sales. A lot of other things happened, some due to my poor management but also an injury that kept me from working for 6 weeks.
Let's face it, nobody who owns a small custom cabinet shop is getting paid what they are worth. I don't care if they are Lean-ed, E-Myth-ed and well oiled, they still carry the weight of every employee screw-up, nosy gov't regulator, unpaid invoice, and tax audit. How many more years does my family have to suffer the feast-or-famine cycles before I get there? What else do I have to sacrifice? Looking around at colleagues who have been at it 20+ years, they are still living modestly. Throw in another slow economy and they're back to raiding their personal savings to float the business again.
OK, sorry for the rant. Uncle Sam and I are cool, as far as I know. I owe relatively little to vendors and should be able to settle up with them soon.
I may get in touch with a B-word lawyer. At the very least it would be helpful to negotiate some better terms on the debt.
Being straight with the government is a big hurdle to have cleared. Call you creditors and tell them you are closing. They will settle for a fraction of the money now vs slow payments over a long period. Don't run up large credit card balances at high interest rates to satisfy small creditors.
Having helped close up a small business 5 years ago, I can tell you that you can greatly reduce your liabilities with a few honest calls. You will run into some uncooperative creditors , most likely the leases. Those are the ones to string out.
Paying minimum payments on a credit card will take in excess of 20 years to pay off at the high interest rates.
Is there still such a thing as chapter 7 bankruptcy? I know they changed the laws recently. If there is a chapter 7 you should look into that. I believe a sole proprieter's debt is seen as personal income/debt. Under the old rules anyway chapter 7 completely erases all debt up to a specified limit.
Don't know what your particular situation is but the best thing I ever did was get rid of all my hired hands. I did have some good ones over the years but anybody that really gets this kind of work and the satisfaction that comes from it will always want to be in business for themselves. I get that. It's what I did 40 years ago.
Sorry to hear your ending things... but it sounds like you've made that decision...
As it relates to your leased-machines, depending on your terms, you may not be able to sell them... contact the company, explain your situation and see if they will take them back as payment... if you can sell it for less than what you owe, and pay it off, you may still need permission to do this... If not, spell it out for them what you can afford to pay, and come to terms on it in writing... Unless it goes to a debt collector, your personal credit rating won't suffer...
As to the rest, part of going out of business is liquidating your assets to settle debt. They don't let you keep the stuff and still owe... not even as a sole-proprietor...
So being that you are moving on, your focus should change from "I'm going out of business" to "how can I minimize the realities of it"... If you don't have one, get and sit down with an accountant to find out how you can maximize this decision to your favor...
Keep in mind, this is a phase of life... you make work for someone else for a while or that may be what you're suited for, but it does NOT mean you can never going back in business again...
Best of luck... 8^)
I'm with the Jim that posted above. It may be easier to work your way out of your situation solo than to take a job. I made it through the worst of the eighties on my own with a couple of good clients. Most us enter woodworking without knowing anything about business and that knowledge is hard won. Learning how to say "no" is often more important to success than trying to please everyone and getting over extended. Good luck.