Thoughts on closing a business

[nomadjanet]

One of our businesses that used to be our main income stream has taken a down turn. We are still making money overall but it is requiring our time to do so and the profit looks like it will be less than 200k this year. My partner is burnt out on the situation (he hates having employees) and I cannot run the business without his license. Right now would not be the best time to sell the business due to the down turn. At this point we are considering just doing an asset sell because he is so irritated with giving up his time to over see employees for such a reduced amount of money. It is requiring about 20 hours per week of his time. So has anyone ever shut down a business in similar circumstances? Does anyone have any thoughts on the process? We also have maintenance contracts with clients that would need to be transferred to some other provider or refunded to the clients just through some thoughts as me .

 

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[andviv]

A friend of mine went through a similar situation. He was the investor/partner/CEO and the other guy had the contractor license (it was a construction company, with maintenance contracts in place).

He did complained a lot about the maintenance contracts when wanting to close the business.

In the end they decided to keep things running (instead of employees, they went 1099 for EVEYBODY) due to the pain of dealing with those contracts and end up losing more money by closing it.

It now runs kinda "on call" and makes some money with minor overhead.

 

[GlobalWealth]

Tell us about the business.

 

[ZCP]

What keeps you from getting the license? Does he have to physically be there for you to use his license? Maybe pay him a yearly fee for the use? Profitable businesses in current times are not something to just close up and shutter. Could you tell us more about the business?

 

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[nomadjanet]

The issue is not that he needs to be there, it is that he has the type of relationship with the business & the employees that makes him feel he has to be there and supervise people. We have a plumbing, drain & septic system service business. In our state 1099 in a residential plumbing service business is not an option, it requires us to have real control over the tecnicians. The septic busiess is not this regulated and commercial is also not as regulated. I could get the master plumbing license but it requires time at least 2 years as a journeyman 1st I could currently get my journeyman but I don't think he can hang on for 2 years. And even if he could, he would be reluctant to release control. We used to have a manger in place and we were able to travel and deal with things a little looser with the profit down we are reluctant to spend the money on a manger. Even when we had a manger he was never satisfied with the mangers performance or decisions always needed that control. This puts us both into a job again (about 20 hours a week each). I don't mind much as my work time is flexible I am not so much at the beck & call of technicians. I am managing the office he is managing the field. So here we are to get less income and we are putting in more time. We have 2 other business which make us more than enough to enjoy our life and we have investment income which is enough to be secure even if the other businesses dump on us. I am at the point where I can't stand the stress of him being so negative about the situation. As far as the maintenance contracts the dollar amount is low enough that we could pay it off without being a big hickup or we could pass it off to another business (these contracts are really lucrative as the people tend to use our service for other repairs other than the covered items). .
Janet

 

[bflbob]

I'm probably going to sound a bit harsh here, partly because I don't know what the business is, or if this is just one of 5 related businesses that your partner is spread between. That being said, here goes...

If I take the $200k and divide it by the two of you, it means he's making $100k a year, working 1,000 hours to do it. That gives him a pretty healthy pay rate of $100/hour. That's great if the business is floor cleaning. Not so great if it is a legal firm.

But what is important is that fact that you have the privilege and responsibility of employing those employees. In today's economy, I think it would be very selfish to dismiss a staff just because he doesn't like working for $100/hour.

I know this might run counter intuitive to the Fastlane mentality, but I think we are here for the greater good. Laying off a group of workers right before the holidays isn't for the greater good. It is for your partner's good, and that makes it a not so nice thing to do.

In big companies, sometimes a division must be closed, or a store closed, or whatever. By doing this, those left behind can still keep their jobs and continue to prosper. It isn't that much fun for those affected, but it is for the greater good, since it allows the remaining folks to keep their jobs (as opposed to shutting down the entire business). What you are proposing leaves no one their jobs.

I have had to close a business. It is no fun at all. But it was not supporting itself. We reached the point where we were in debt to vendors, owed back sales taxes, and more. There was no alternative in that case (we weren't pulling money out of the company). Interest rates had climbed to nearly 25% at the banks. We couldn't even borrow our way out.

So, what would I do if I were you? I'd ask my employees if any of them were interested in getting licensed. I'd let them know that times are tough, and that raises aren't likely right now. I'd tell them that I'd stick with them, if they were willing to stick with me. Then I'd fight to make it work. Times will get better again. They always have.

On another note, my one concern with what Andviv's friend did is that the IRS is looking for companies that do this. There are strict regulations concerning independent contractors (1099 employees). You can't simply switch your staff to 1099 status.

Hope this helps.


Update: Sorry...I started this a couple hours earlier, and finished when I got back from my grandson's swimming. Missed all the updates after Andres.

 

[biophase]

Can you sell the business? I know you said that it's not the best time to sell but I can't imagine that selling would bring in less money than dissolving?? Isn't the low end of the selling price the same price as dissolving and selling the assets? If so, how can selling be worse than closing. I'm sure there are a few competitors who would love to add an extra $200k to their bottom line. They may have managers in place and the infrastructure to expand.

Also, I agree with Bob, you are potentially laying off a bunch of employees when there clearly is still a need for their work. Sounds like your partner can't relinquish control and would rather have full control or no company at all. Are you really unable to find a good manager at even $100k a year in this economy?

I would look to hire a manager and then put in a plan to have someone else get licensed within 2 years so you can eventually transition your partner out of the day to day. After all isn't the long term plan to get this thing running more passive?

 

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[White8]

Sorry to hear that you are having a rough time. If Texas was closer to Oregon I'd be glad to trade you a money pit electrical contractor for it.

I closed my previous business, a John Deere dealership several years ago and it was a learning experience.

1. If you have anything that is sold to retail customers have a "going out of business sale" preferably run by a company that specializes in that sort of thing. I watched the furniture store next door go out of business and they were selling "marked down" items at over double normal retail. (my business partner didn't want to go this route...)

2. Screw your vendors. We were current with all of ours so they were less than willing to take back inventory. I've felt that if we had not been current, that inventory would have been a way for them to mitigate their losses. (John Deere stuck me with $20k in parts they wouldn't take back)

3. Know your state laws and how to manipulate the situation to your advantage. After closing the business, I learned that in Oregon, if a vendor cancels a dealership agreement with a dealer they are required to buy back anything and everything that the dealer has purchased to support the product down to the last logo printed thumb tack. (had I know I would have worked really hard to upset them enough to cancel)

4. Auction off what's left. I used the Craigslist method and it took about six months to get rid of the last of it. The auction is faster and prices seem to go higher.

5. As far as your service contracts, see if you can sell them to a competitor. Even if you have to sell them at a discount it's better than buying them out entirely.

6. Your customer list and phone number may also be marketable to a competitor.

 

[bflbob]

On another note, my one concern with what Andviv's friend did is that the IRS is looking for companies that do this. There are strict regulations concerning independent contractors (1099 employees). You can't simply switch your staff to 1099 status.

More on this, thanks to Diane Kennedy...
https://ustaxaid.infusionsoft.com/he/2622559/38f9f801d82b82761518c6727997dc84

 

[Davidla]

It seems like your only problem in this business is your partner :smxF:
Other than that it looks like you would like to keep the business running...

I think that closing down the business is the worst option possible for you ATM - because of the long term commitments you have, and simply because you could probably get more money by selling it right (none of your competitors should even hear you are thinking about closing).

I'd look at an option of buying your partner's share of the business, and if possible hire a manager with a license. It might be a tough find - but there are most likely people out there with licenses who are qualified to be managers aswell, and who are looking for an opportunity to do something bigger than what they are doing right now. Maybe one of your employees is already licensed?
Do you think the business will work if your partner is replaced? Or is he a foundation of the business and it will just collapse without him?

If you are thinking about this business for the long run - then perhaps getting a master's license will be a good idea even if you hire a licensed manager.

Most importent question of all:

What is the cost of your time?
If you close the business, what will you do with that "free" time? Would it give you better profits concentrating in your other businesses?

 

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[shunt]

It seems a shame to close a profitable business. I'd approach my favorite competitor's about a possible merger...me acquiring their business...if they are not interested in selling that's when I ask if they might be interested in buying. I have actually sold...and bought (be careful they may give you a deal you can't refuse) 2 businesses this way.