The announcement that the U.S. jobless rate surged to 14.7% in April 2020 wasn’t a big shock given COVID 19’s obvious extraordinary impact, but it was no less sad and concerning. The reverberations of an extremely cash-strapped consumer will be felt for months.
The worsening economic picture has many implications for business owners. Unfortunately, many firms won’t likely survive, and those business owners need to plan for shutdown scenarios.
My colleagues at NAVIX Consultants and I work with business owners who are shutting down operations. Typically, these situations have occurred in more normal times….which offer the luxury of more time. Regardless, the principals are the same. It’s all about settling obligations.
Obligations to Self: The business owner needs to understand what he/she needs from the shutdown “event” financially to prepare for the next chapter. This should be at the forefront if there is any discretion with the timing, and the owner is still able to “self-pay.”
Obligations to Customers: Many business owners grow close to their customers and hate the idea of leaving them in the lurch. As plans for a shutdown are formulated, make sure to spend time helping customers find alternative “supply” sources.
Obligations to Employees: Similarly, business owners don’t want to leave their employees, many of whom may be like family, in the lurch. This process has to be done very carefully with attention paid to federal and state regulations. Some businesses are required to give their employees a mandated amount of heads-up time. Management will have to work through severance and benefits issues, while employees may need help in understanding COBRA as well as with available outplacement assistance.
Obligation to Creditors: Business owners need to understand what remaining lease obligations exist, as well as customer/employment contracts that need to be considered and possibly amended. This includes obligations to retirement/benefit plans.
Obligation to Business: Management needs to take a hard look at the business assets- plant equipment, inventory, real estate, life insurance contracts, etc. – to understand what might be garnered in a shutdown. Depending on a firm’s legal structure, there could be tax obligations.
Conclusion: If a business owner is faced with the possibility of a shutdown, planning needs to commence as soon as possible. This is, in no way, an “exhaustive to-do list” in that scenario but it should provide a start.