Hope for the Best, Plan for the Worst

Business associations, the government, industry experts and loyal customers and communities are all pulling for getting small businesses through this current health and economic crisis. Sadly, though, some businesses just won’t make it. Either the infrastructure isn’t there to support a long period of reduced or suspended activity or the owners choose not to go through the rebuilding process.

As Seth Gardenswartz (Blackgarden Law) said in a recent New Mexico Restaurant Association webinar, if you are concerned about your business failing, be prepared to begin the exit process early. Delay in exiting a business that is destined to close only means higher costs and more heartache.

This blog outlines an action plan for business owners who believe they will want to or need to plan for an exit.

1. Assessment
   Now is a good time to bring in advisors – accountants, attorneys, lenders, landlords and others who have a stake in the business to evaluate the current situation and explore options. Are there ways you can cut expenses? Are there contracts that can be renegotiated? Will your landlord and/or lenders entertain concessions such as discounts, delayed payments, or debt reduction. Can your staff suggest ways to be more efficient? Are there loans or assistance programs that can help you through difficult times? What value do business assets have that could be liquidated? How much time do you have before a go/no go decision needs to be made?
2. Planning
   Based on the assessment, develop a plan for moving forward. What can you do? How can you measure the results of the actions you are taking? At what points—either in time or by some other metric—do decisions need to be made?
3. Action
   Execute the plan and be honest with yourself about your business’ ability to weather the storm. It is amazing what a team of advisors can accomplish when working together on an action plan. In the best of outcomes, you will emerge from this challenge with your business stronger than ever. However, don’t delude yourself it the plan is not working. Beginning a distressed sale process early rather than later gives you more flexibility for realizing some return from your investment. A business sale can relieve you of some or all of the equipment leases, rents, personal guaranties and other contractual obligations associated with the business. And if you feel you must liquidate, you want to do it when you are less in arrears and have more room to negotiate. (Your attorney will be your best ally in evaluating contract obligations and what is transferable.)

The Silver Lining

A business closing is simply a First Attempt In Learning (FAIL). Some things are beyond your control. And the 20/20 hindsight that comes from seeing how something doesn’t work well is invaluable for future endeavors. The important thing is to fail well. As in poker, you need to “know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.”* A strong team of advisors, including a business broker to assist in the asset sale, can go a long way toward helping you find a soft landing if it turns out that this was an opportunity for you to learn strategies and tactics for your next business down the road.

* Kenny Rogers, “The Gambler”