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Business guide to Coronavirus

Borrow, sell or close your business: How to decide

When your business is struggling, it can be hard to decide what steps to take next. Securing a new business loan or refinancing an existing one might help you stay afloat for a little longer, but is it always the best choice? Here are four options to consider when times get tough.

1. Get a loan

Business financing can be a good option if you're still passionate about running your business and have a solid growth strategy in mind. Should your business have a good track record and you only recently hit a rough patch, the odds of securing additional funding might be in your favour. However, if your figures are consistently in the red, you’re less likely to be an attractive loan candidate.

If you apply for business finance, lenders may need a detailed explanation of how the cash injection will be used to increase your profitability. This could be through product or process innovations, increased marketing activity or hiring extra staff, to just name a few.

Be prepared to submit a full business plan, cash flow projections and your recent business activity statements (BAS) with your application.

2. Sell

Are you ready to move on from your business but are not keen on closing it down? Selling it to someone else might be the answer for you.

Naturally, potential buyers tend to purchase businesses they think will be a profitable investment. Therefore, the first step should be to sit down with a financial advisor and discuss whether or not your business really is a saleable prospect.

If you decide to try and sell, give yourself a year or two to get your business and books in order. Develop a strong business strategy and know your numbers inside out, streamline overheads and processes, analyse and mitigate risks, and optimise your staffing structure. Thorough planning and complete transparency with potential buyers throughout the process can help maximise your success and sale price.

How much is your business worth?

We've partnered with Business Valuations Online, a CPA Public Practice, to provide members with affordable business valuations and health checks.

3. Liquidate

Entering voluntary liquidation might be the best option if your company is no longer viable, you can’t service debts, sell or secure additional finance.  

Liquidation is a relatively inexpensive, straightforward process. It involves selecting a liquidator to deal with any outstanding contracts, sharing information with creditors throughout the process, and dismantling your company structure in a controlled manner.

However, speak to your financial advisor about your rights and obligations before entering liquidation. These vary based on your business structure and circumstances. 

4. Close down

If your business is losing money, but you don't have outstanding debt to service, it might be time to cut your losses and close up shop before things go further downhill. 

Before making the decision to close your business, be mindful of any ongoing financial commitments you might be liable for, such as tenancy agreements. It's also a good idea to speak to your financial advisor about any other options.

If you decide to close, you’ll need to take various steps. These may include creating an exit strategy, notifying your employees, customers and creditors, cancelling contracts or subscriptions, filing relevant paperwork, taking down your website and any directory listings, and so on.

When your business is struggling, these are the four main options to consider. A trusted financial advisor can help you weigh up these options and decide on the best course of action based on your personal circumstances.


Disclaimer: This does not constitute financial advice and individuals should seek information from their financial advisor before making a decision.