In this article, I give advice to a business that operates as a sole proprietorship or LLC and that has been affected by the hostilities in Ukraine. We take small and medium-sized businesses as a basis.
The first tip is to decide where you are going
I believe you should make a conceptual decision about what to do with your business as a whole and choose one of the following options:
- business preservation
- to decide on the complete liquidation of the business
- try to sell the business
Regarding the preservation of business
Unfortunately, now and possibly for a long time, the business may not work fully or partially, but this does not mean that it should be closed. If you have gone a certain way, then your reputation, established brand, loyal customer base, material and technical base, employees, location and your experience have great value in themselves. Therefore, in this case, I recommend not to “chop from the shoulder”, but to consider the option of “freezing the business” for a certain time so that under favorable conditions you can quickly resuscitate your business and start with new forces. I talk about “freezing business” and how to do it correctly below.
Regarding the liquidation of the business
Often, entrepreneurs look at the process of liquidation as a formal legal process of termination of a sole proprietorship or liquidation of an LLC with the dismissal of employees. If the organizational structure is all you have at the moment, then the liquidation process will indeed look more or less simple and predictable. In fact, you have 2 ways: legal liquidation through the closure of business activities in all registers and state bodies or the so-called “express liquidation” where you simply sell corporate rights, which is true only for LLCs. FOPs will still have to be closed in all registers and state bodies.
If during your entrepreneurial activity you have generated a complex business organization where a lot of contracts with partners are intertwined, you have lawsuits, accounts receivable, you have a large number of employees, you have property, etc., then here I recommend starting with the involvement of lawyers and draw up a roadmap for liquidation. Because in addition to the procedural decisions on liquidation and the determination of the liquidation commission, conducting audits in the tax service, notifying employees and contractors about the fateful decision to close, you still have a lot of work waiting for you, which directly depends on how you worked and on what scale.
Regarding the sale of the business
Already during the war, we had several successful cases of selling businesses of various scales. Someone was selling a completely ready-made company with intellectual property, employees, a customer or supplier base, corporate rights. There were also those who, with our support, managed to sell only a part of the business in the form of a brand or customer base and withdraw their invested funds. Therefore, if you have decided to close, why not consider selling assets? The main thing is to have commercial values and know who might be interested in it, and then, having secured legal support, enter into negotiations.
The second tip is to “freeze the business”
In the event that entrepreneurial activity is currently difficult to resuscitate, you can simply freeze the company for a certain time. After a certain period of time, when the political and economic situation changes, you would again consider the option of a new start, liquidation or sale.
What might a “business freeze” look like?
Everything here depends on your specifics, and therefore the most detailed advice could be given knowing you and your current state of affairs. However, when temporarily suspending business, I recommend also looking at your most valuable possessions. The logic is simple – keep everything most valuable and get rid of what you can get rid of at this stage.
Steps to suspend a business:
- Conduct an audit of the company’s costs for the services or goods of contractors and cross out those that can currently be dispensed with.
- Optimization of personnel. In my opinion, it is best to do this through the use of the right to suspend labor contracts, thereby freeing oneself from the obligation to pay wages, but at the same time keeping the employee’s job (during martial law there were amendments to the labor legislation). This option will allow you to retain valuable employees. Also, the solution to the problem can be through the release of part of the employees, the transfer of some employees to a reduced rate, sending them on vacation.
- Optimization of incentive costs for personnel. In good times, many companies could afford to pay for employees’ lunches, paid subscriptions to various services, travel, rest, and the purchase of gadgets. Now it’s probably worth reviewing all of this.
- To receive a payment delay from your partners, for this you must sign additional agreements to the contracts.
- Get rid of the office and transfer the business to a virtual office during the work stoppage. In the current conditions, nothing terrible will happen if you rent a legal address, and in case of urgent need, use coworking services in the office. So you will not burden yourself with regular rent payments.
- Minimal legal and accounting support. This means that it is desirable to have outside specialists whom you can call at any time and consult or issue a mandate to close this or that task. This approach will significantly help preserve what is left of the business and not incur significant costs for legal or accounting services.
The third tip is to minimize accounts receivable
Earlier in this article, I advised you to request a deferment on your payments. But when you are asked for a postponement, when making such decisions you should proceed from considerations of the reliability of the partner. Almost any company has debtors who were involved both before the war and during the war. These debtors need to be pressed and immediately. In general, regarding the debt, at least you need to check your contracts under which the debt arose and be sure to do 2 things:
A) check the statute of limitations
B) check the availability of originals of all supporting documents for transactions with debtors (you must have all signed acts, invoices, invoices, contracts).
There is such a category of partners who, as they did not show interest in closing debts, continue to forget about their obligations. Here I recommend starting legal proceedings, as there is no alternative to return your funds.
The fourth tip is to keep your finger on the pulse
It is no less important in such a difficult period for our country to keep the focus of attention on the following 2 circumstances:
- Position of your partners – you should be aware of how your partners are experiencing these difficult times. For example, someone may already be in liquidation, but they owe you money. This means that you need not to miss the moment and submit your claims for debt repayment within a 2-month period. It is possible that someone will be searched by law enforcement agencies or audited by the tax office, in which case you should be prepared for the fact that they will soon come to you (as a counterparty), or again, be ready to take measures to collect receivables.
- Security of your business – no matter where you are now, you need to keep an eye on your assets and do everything to prevent them from being tampered with. Do you remember the period from 2014 to 2015, when the problems of raiding, pressure from law enforcement agencies, and deception by partners intensified during the then social upheavals? I hope that many people have learned the lessons of the past and will know how to protect themselves.
The fifth tip is a new breath
As I mentioned above, the value of a business is a reputation, an established brand, a loyal customer base, material and technical base, employees and your experience. Under such conditions, it may be worthwhile to look at the situation from a different angle and try to focus on one area of activity, or in general to discover new areas of activity or even markets.
For example, some of our clients are consulting on starting a business in Poland or on issues related to registration of online trade. Earlier in this article, I suggested considering the option of selling the business, but if your situation is not deadlocked, then maybe you should even think about buying the assets of those businesses that are ready for sale.
There is always a solution to the problem – the main thing is to find it.