It is an unfortunate fact of life that about 1 in 3 new businesses fail in their first couple of years. This is part of the risk of starting your own business. It is something that you can learn from so that you don’t have the same problems with your next business.
One business failing needn’t mean that you will personally go bankrupt. Nor does it have to mean that everything ends in disaster. When handled properly the end of a business can be a relatively painless affair.
The worst case scenario is a compulsory liquidation. This normally happens when one of your suppliers believes that you cannot pay your debts. They can use the courts to force your company into liquidation. An official liquidator will be appointed and they will sell of everything the company owns in order to pay everyone off. It is a very public process and one over which the company’s directors and shareholders have little control.
Of course you do not have to wait until you are forced into liquidation. If you have a lot of debt but believe that the company is still viable and can be turned around then you may be able to enter into a Company Voluntary Arrangement. If you want to close the business down and you believe that you can pay off your debts within 12 months then you can enter into a Members’ Voluntary Liquidation (MVL). If you have realised that your company is insolvent and you want to close it down then you can enter into a Creditors’ Voluntary Liquidation (CVL).
These options will all involve you publically declaring that your company cannot pay its debts and may involve having to hire liquidators or accountants who can quickly build up fees equal to any assets the company may have had.
If you would to prefer to handle things quietly and without too much outside involvement then there is another option. If you can clear your company’s debts, stop trading for 3 months and are not subject to any legal proceedings then you can have your company dissolved. The process is pretty simple, does not require any court action, liquidators or public declaration. All that you need to do instead is fill out a form and send it to Companies House with a payment for £10.
Whatever state your company is in, taking control of the process and being pro-active about the situation will make the end of your business much less painful. If you can avoid going down the compulsory liquidation route then it is perfectly possible to stay on good terms with your suppliers and customers. To settle your debts and walk away with your reputation intact.