The SHUT-DOWN Decision


At Taking Care of YOUR Business with Carrie, we look at how to maximize the value of your business, and what it means to ‘know your numbers’ to get there.

We have many new ways of doing business during the COVID-19 virus and many interesting changes in processes.  Some businesses are flourishing.

Some businesses, however, are telling me they will not be re-opening.

So today we are going to go through the shut-down decision.  Sometimes maximizing the value of your business means shutting it down.

At one point in my career, at a large multi-national organization, I was involved in the evaluation of shutting down a major line.  At other times in in my own businesses I was faced with similar decisions.  It can be a crushingly stressful time.

FIRST, take a day off.

Seriously, everyone knows that on an airplane, you put on your own oxygen mask before helping another person.  The same logic applies here; this is not a quick process so unless you are at the point where the landlord is putting the chains on the door, take a day off.  Go climb a hill, take a drive or lie on the grass and watch the clouds float by; take care of yourself first; clear your head so you can approach this decision and process in a calm and rational way.

SECOND, Assess.

Determine where you are at; this may be the most important step.  Start a spreadsheet and realistically estimate all the items involved in shutting down and the net cash or deficit at the end.

  1. Pull out that dusty old lease if you are a tenant. You may or may not have looked at it recently, but you are looking for three key clauses:
    1. Personal Guarantees: If you have agreed to personal guarantees, it means that the landlord can come after you for any rent and maintenance fees due until the end of the lease term, or until they find another tenant (don’t count on them finding anyone).
    2. Equipment: There may be a clause that says if they evict you any inventory and equipment on the premises becomes the property of the landlord.
    3. Improvements: Some leases have a clause that stipulates that the premises need to be returned to the state it was before you “improved” it.


  1. Estimate the NET Cost and resulting cash or deficit to shut down within the time frame you have. The faster you need to exit the less you are likely to get.
    1. CASH – How much do you have and how much can you get.
    2. ACCOUNTS RECEIVABLE – What is the realizable value
    3. INVENTORY – How much can you get for it – can you return some of it to suppliers?  can you sell it off in an orderly way or at fire sale prices?  Are there EBAY resellers who will take older inventory off your hands – likely for 10c on the dollar.  Remember inventory is worth $0 in a box in your garage – get what you can from it.
    4. EQUIPMENT – How much can you sell it for in an orderly liquidation vs calling in the auctioneer.
    5. LEASES – Real Estate leases are addressed above, but also look for the cost of ending Equipment and Vehicle leases, and other short-term credit arrangements.
    6. LIABILITIES – What must be paid
    7. LOANS – Any other Short or Long-Term loans.
    8. PAYROLL OBLIGATIONS – Do you have to pay out any accrued vacation, severance, or other payroll related costs.
    9. ANY OTHER OBLIGATIONS – What will it cost to settle them.


  1. Build a projection of REALISTIC REVENUE, by month for the next 1-2 years.

Then estimate the amount of each expense.

Then do it again, this time adjust the big expenses to the amount they need to be to just break even.  What could you pay in Payroll costs if you had to break-even?  What could you pay in Rent at break-even?


THIRD, Talk to the Stakeholders

Now that you know where you are at talk to the people who hold your obligations.  These may be tough calls to make, but it is in their best interests to work with you to get what they can rather than getting nothing.

You have estimated the cost to shut down, and you have estimated where your costs need to be to keep going.  Be honest and straightforward with the stakeholders and discuss what you CAN do.

LANDLORD – Tell him what you estimate you could pay in rent.  And if you had to close discuss what he is willing to do.

BANKERS AND CREDIT CARD COMPANIES- Many are providing assistance unrelated to government programs including deferred minimum payments and extending loan repayment terms, waiving interest, providing interest payment only options and so on.

ACCOUNTANTS , LAWYERS, BANKRUPTCY SPECIALISTS – these people may have options you have not considered.  Often, short calls with you are no charge.  Even if you have to pay for their advice it usually costs less than the implications of NOT getting good advice.  For example, some of the losses may result in tax losses that can be carried back to prior years creating tax refunds that can offset the cost of shutting down that you calculated above.

BUSINESS BROKERS – Call your local business broker or equivalent specialist in your area.  They may know who is looking for acquisitions and be able to provide some level of confidentiality in exploring the possibility of selling all or a part of your business.

SUPPLIERS & CUSTOMERS – Talk to these people – if you have perishable inventory – you may be able to negotiate lower minimum orders to mitigate spoilage.  If you have resale inventory, they may take returns.  And if you have a balance owing you can discuss a payment plan – usually if you can pay something on a regular schedule, it will keep the collection agents away.

Calling Key Customers if you have them opens doors to discuss ways of working together to create win-win arrangements.  Maybe you both lower your margins for a short period so that both of you survive.

INSURANCE – File a Claim for Lost income – if you have it.  Last week I attended a webinar and some states are requiring Insurers to pay out regardless of the wording of the policy; some larger companies have already filed suits when their claims were rejected that may result in benefits to all policyholders.  It will be some time before the fallout is completed so file the claim regardless of what your agent says-you may get a payout some day in the future.



Now you know where you are at, and you know where your stakeholders are willing to go.  This may be the point where you decide to continue the business rather than shut it down!

If you do decide to shut it down, work to reduce your costs as quickly as possible.  Reduce staff by all but the most essential people.  Convert Assets to cash as quickly as possible.

Get the professionals working for you that will negotiate the best possible settlements on any final balances owing.

Last note: I knew an Owner who disappeared in the night when he couldn’t continue any longer.  It didn’t help him.  Creditors and those that did not get restitution for his obligations where tracking him down years and years later.

A rational solution with the help of the right professionals and settlement solutions that you and your family can live with will mean you and your family can sleep at night and you can move forward with rebuilding your life.