If you are reading this blog and thinking to yourself “great, you can help me settle my debt, but how do I close my store?”, this is the article for you.
Just like opening a business, closing a business requires a plan. The difference between closing with a plan and closing without a plan is similar to the difference between jumping out of an airplane with or without a parachute: you are going down either way, but careful planning can be the difference between crashing in a fiery heap versus gliding to a smooth landing.
Some tips to avoid that fiery crash:
Don’t Be A Ghost
When business is going poorly, the tendency is to want to run and hide, especially from your lender. Don’t. Ignoring your banker is the surest way to tick off her off. Having a banker who likes you is a valuable asset. Having a banker who dislikes you can make settlement discussions difficult or impossible. Return calls, letters, and emails. It could mean the difference between settling successfully and having a legal judgment filed against you. Your banker is a human being. Treat them with respect. It’s not going to change the facts, but I can tell you that when I was a workout officer, I would never give jerks the nod in a toss-up situation.
Save Your Pennies For That Upcoming Rainy Day
Once the business is closed and the business assets have been liquidated, its time to make your settlement offer (MUCH more on that here).
You can only make a settlement offer if you have something to offer, so once you know for sure that you’ll be closing and seeking a settlement, start conserving cash and looking for ways to raise cash to make an offer. Friends, family, home equity loans, and credit cards are typical sources of cash.
Keep in mind that cash in your business account cannot be used for an SBA Offer In Compromise. I had a guy call me last week. He had hired some really scummy guys who had tried to sell him on the Asset Dump and Buy Back strategy. These guys are great at marketing, not so great when it comes to ethics.
Anyway, they had told him to hide some money from the bank (yes, that’s shady). What they apparently failed to tell him was that the money needed to be in the personal bank account. So now, he’s got $80K in his business account. That’s a HUGE problem.
Get Your Ducks In A Row
The time to decide what your settlement strategy will be should be well in advance of making an actual offer. If you are working with a professional like DLA, you can determine what the best strategy might be, and what’s most likely to be approved by your lender and the SBA. There is nothing more disappointing to a borrower when they do everything that the bank asks, only to have their settlement offer declined because they didn’t know the parameters of the OIC process going in, and didn’t have a backup plan.
Ask Permission Before Having A Closing Sale
While the idea of slashing prices to raise cash may sound good in theory, make sure your lender is ok with it. If they think you gave away the store (and their collateral), you may get an earful from your banker. Even worse, you may be in a position to make up the difference between what you sold the items for and what the bank thinks they were really worth.
Settle With Whoever You Can
Many vendors will settle with you if you can make a cash offer. By tying up these loose ends, you may be able to save the headache of collection calls and personal judgments. The SBA will also want to know who else you have attempted to settle with. They don’t like it when they are the only lender taking a loss.
It’s worth noting that your settlements with various creditors, including the SBA, should be on a pro-rata basis. This means if you want to pay the SBA 10% of what you owe, you’d better not be offering your other creditors 90% of what you owe to them.
Play Nice With Your Landlord
Next to your SBA lender, your landlord may be taking the biggest hit by you going under, as they stand to lose years and years of rent that they were expecting. In order to minimize the damage, try to find a qualified tenant for the space. When you eventually move out, leave the space “broom clean” so the landlord isn’t stuck cleaning up your mess.