Ending your business in a controlled manner

The corona crisis affects many companies. It is possible that your company is suffering from the (financial) consequences of the coronavirus. In your industry, fierce competition may already be putting pressure on profit margins. And maybe you are not able to build up enough reserves to keep your company afloat. Does the outlook remain bleak, are debts piling up, and does financial recovery seem unlikely? Then you might come very close to ending your business.

Every year, approximately 120,000 entrepreneurs end their business (source: KVK Bedrijvendyamiek, in Dutch). Ending your business is a major decision. So it is important to talk about your (financial) concerns with people you trust. Discuss possibilities for a different future with them. How can you be sure that ending your business is the best option for you? How do you recognise the signals in your company and in yourself? And what obligations are there and what steps do you have to take?

Example

Take the fictional example of a sole proprietorship in the travel and transportation industry. Douwe Boonstra is 55 years old and owns a small coach company with 2 Royal Class coaches. For years, he has been driving groups to destinations on day and weekend trips, staff outings, or (Christmas) markets across the border. His twin brother Bob Boonstra is employed by him. He also drives a coach.

Due to the corona measures, Boonstra's 2 buses are now out of service, parked on his private property in a warehouse. In addition, the 2 coaches are almost depreciated economically and will need to be replaced after the summer. The invoices for major maintenance on the coaches are still unpaid. In addition, Boonstra is behind on his mortgage. Fortunately, he has an extended suspension of payment from the bank. Boonstra is punctual with his clients' appointments, something that he is less successful at with his accountant. The accountant cut ties with Boonstra 6 months ago, because his invoices were no longer paid.

There are also a handful of smaller creditors who are less patient. Wende Kievit is Boonstra's wife. She notices the telephone ringing more and more at home: these are entrepreneurs her husband owes money. She discusses this with him. After a good conversation, Boonstra decides to put things in order and to close down his company, because it is no longer viable (in Dutch).

Do you recognise this scenario? Then, like Boonstra, go through the following steps to end your business in a controlled manner.

1. Get your administration in order

To end his business, Boonstra has to deal with various authorities. For example, the Tax and Customs Administration, the KVK Chamber of Commerce, the municipality, and the Employee Insurance Agency (UWV). Boonstra needs accurate business records to settle matters properly with these organisations. He has the duty to keep proper records, according to the nature and size of his company. Neglecting his administration could cost him dearly later. The court will take this into account in the event of bankruptcy or debt restructuring. Boonstra is looking for help (in Dutch) to get his administration in order. He makes an appointment with an advisor and already lists his estimated operating figures (in Dutch). Together with the advisor, he calculates everything again.

Original operating forecast (prepared before the corona crisis)

Gross turnover (cross-border trips with groups)
 
200,000
Costs of purchase (none: service company) 
           0
Net turnover
 
200,000
Costs
 

Depreciation company assets
   60,000

Wages
   10,000
 
Insurances
   10,000
 
Fuel
   20,000
   
Energy
   30,000
   
Coach maintenance
   20,000
   
Total costs
 
 150,000 
Profit

  50,000

Adjusted operating forecast (prepared during the corona crisis)

Gross turnover (cross-border trips with groups) 
  90,000
Costs of purchase (none: service company) 
           0
Net turnover
 
  90,000
Costs 

Depreciation company assets
   30,000
Wages
   60,000
 
Insurances
     5,000
 
Fuel
   15,000
   
Energy
     2,000
   
Coach maintenance
     3,000
   
Total costs
 
  115,000 
Profit

- 25,000

2. Get started with help

Boonstra also makes a liquidity budget (in Dutch) together with the advisor. With these figures he can clearly see the seriousness of his situation. In the first quarter of the year he used schemes from the corona measures package: Compensation for Fixed Costs (TVL). And Boonstra has applied for the NOW scheme for his twin brother.

Liquidity Budget


Quarter 1
Quarter 2
Bank balance start of quarter
     -  2,300 
      -1,500
Paid invoices from bookings
               0 
       20,000
Received corona support: NOW and TVL
       24,300 
               0
Wages
       15,000 
       15,000
Insurances

         1,250

         1,250
Fuel
               0
         3,000 
Energy
         1,250         1,250 
Coach maintenance
              0
         2,500 
Private withdrawal entrepreneur
        6,000
               0   
VAT owed
              0
         3,000   
Receipts -/- Expenses
          800
       - 6,000 
Bank balance end of quarter
    - 1,500 
      - 7,500 

3. Settle your debts

Kievit is a part-time teacher at a primary school and earns her own income, €1280 net per month. There are some savings from the inheritance from Kievit’s deceased single uncle. The couple Boonstra and Kievit got married on a prenuptial agreement. In any case, Boonstra has no financial resources for the continuation of his company. New coaches are expensive, and his age also plays a role in financing. A lease contract for 2 new coaches is not feasible. The monthly instalments for the hybrid coaches with economical and cleaner engines are too high for him.

Boonstra adds up his total business debt and wants to settle it with a debt counsellor from the municipality. For the time being, Boonstra falls back on his wife's part-time income and her acquired inheritance.

Suppose Boonstra has built up an unsolvable amount of debt. Then a statutory process Wsnp (Natural Persons Debt Restructuring Act) or bankruptcy would follow.

There is also a possibility to reach an agreement on a debt settlement plan without the consent of all creditors. You can prevent bankruptcy with the homologation private agreement in bankruptcy Act (WHOA).

The Debt Flow Chart (in Dutch) shows you which scheme suits your situation and what this means for you.

4. Look for financial support schemes

Because Boonstra has to end his sole proprietorship, he can rely on the Decree on social assistance to the self-employed (Bbz) for financial support. The part-time income of Kievit is net €1,280 per month, which is below the poverty line. With an additional periodic benefit, the municipality supplements the income up to welfare level during the period in which he is ending his business. Boonstra is 55 years old and can also invoke the IOAZ scheme, a right to supplement up to welfare level after business termination. Both schemes require that he applies before he ends his business.

5. Start the settlement

Boonstra experiences that there is a lot involved in ending his business. For example, he brings his business records in order and makes repayment arrangements with his creditors. He faces a lot of stress (in Dutch), especially since he has to fire his twin brother. In close consultation between them, Boonstra's brother uses part of his transition allowance for retraining. Boonstra pays the remainder to his brother in instalments.

He also makes a to-do list and a plan. First, how to tell his customers (in Dutch) that he is ending his business. Next order of business: planning to cancel his company insurance policies, permits, telephone numbers, and subscriptions. He also terminates current contracts. The coaches are fully written off and ready for transport to Africa. A buyer offered a reasonable amount for the vehicles. Boonstra checks how he is going to handle the closing down of his company correctly. After planning a new start, he takes next steps.

Boonstra registers as a job seeker with the UWV and registers for a training course in online job interviews (in Dutch). He expects that after the relaxation of the corona measures, the coach industry will be eager to hire experienced drivers.

Would you like to discuss the financial situation of your company with someone? Call the KVK Financing desk: 0800 10 14.

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