You do what you gotta do
By Timothy Brady
Have you ever been rolling down the interstate, suddenly looked at the fuel gauge and realized: “I’m not sure I’ll make it to where I was going to fuel next.” All kinds of thoughts start going through your mind. Where’s the next fuel stop; any fuel stop? Is that one I passed a few miles ago closer than the next one down the highway? Boy, this is going to cost me. I’m not going to be able to control what I pay. (This is followed or preceded by a string of expletives.)
That’s a micro-example of a problem to which many small carriers, owner/operators and lease operators don’t pay any mind—the Business Exit Strategy. Many truckers have had or will face a similar situation in the future, but instead of running out of fuel; it will be the financial fuel tank that begins to run dry. First realize there are many articles and resources on how to save your company from financial collapse, and every attempt should be made to rescue your operation.
But every company, regardless of size, should have exit strategies designed for multiple scenarios. There are different circumstances requiring you to extricate yourself from your business. Being prepared with different exit plans based on the possibilities is the only way to preserve personal assets and income.
The question is, how do you close down a business with the least financial impact on you and your family? Walking away is not the answer. It may seem like the course of least resistance, but it’s like stopping the truck in the middle of the interstate, getting out of the cab and hoofing it to the house. The inevitable wreck will leave a lot of collateral damage and probably get you room and board with three squares and a striped suit. You need a course of action so if those circumstances arise, then you already know how to get to where you need to go (without a side trip to the big house in the worst of all scenarios).
Planning is everything in a small business. If the operator of the above-mentioned vehicle had planned where to fuel and had enough in reserve for the unexpected, he wouldn’t be in that situation. The same is true in the financial end of business. As is constantly said; know your costs, control those costs, know your market, and have something in the wings to replace revenue lost from an economic downturn. Planning is the secret to real business success. The same holds true if it becomes necessary to shut the whole thing down. Yes, it’s like writing a Last Will and Testament; we know we need to do so, but avoid it because it’s not something we want to think about.
So what are the steps to graciously step away from a trucking business?
- If you have a partnership, corporation or LLC, you must reach agreement and obtain authorization from other partners and stockholders to close your business. This agreement and authorization to dissolve a business should have been established under some acceptable governing set of rules, such as the original bylaws or partnership agreement.
- If there is more than a single owner involved, form a Closing the Business Committee. You need a person covering finance, accounting (Accounts Payable, Accounts Receivable and business taxes), Human Resources and Legal.
- When necessary, hire professionals, experts to fill the gaps in your Business Closing Committee. For many carriers and owner/operators this could be your accountant, attorney, banker, equipment valuation expert and even an auctioneer.
- Review your current business obligations and those vendors or customers who have obligations to your company. Write a List of Problems To Be Resolved from this same review.
- Inventory what is owned by the company, what is owed on these assets and how best to dispose of them with the least negative financial impact. The inventory is very important. It’s used to establish the value of the business, make decisions, manage the sale or disposal of assets and becomes the basis for tax calculations and tax returns. Print out a copy for everyone involved.
- What is your carrier’s current worth? It’s difficult to make decisions without knowing the value of the business and its assets. Don’t forget you may have customer lists and information which can be of value to a competitor. This can be potential cash in your pocket.
- Develop a step-by-step schedule on each area to be discontinued. This schedule provides a way to measure progress and estimate both the time to complete important tasks and when the closure will be final.
- Notifying customers, vendors, creditors, independent contractors (lease operators) and employees will be necessary and may require legal notice. In some cases this can be by classified ad in a local paper or by individual letters to each party. Consult an attorney to be sure you don’t miss anything required by law.
- Check your Business Closing Plan and then check it again. Events will happen very quickly and it’s easy to lose control. Done correctly and by the numbers your net worth can be preserved; do it haphazardly, and your money can be drained very quickly, substantially reducing the net value of what’s left.
- Close or transfer contracts, leases and agreements. This process may require
approval from contracting parties and involve negotiation of final terms. If you lease office space, is it transferable or can you sublet? What about any equipment leases? Know your post-shutdown obligations and responsibilities. In regard to your business insurance, the timing of stop coverage dates is very important so you don’t expose yourself to risks that otherwise would be covered.
- We recently saw the results of a badly planned trucking company shutdown that
left employees, contractors and vendors holding the proverbial bag. One
extremely important reason for a Closing Business Plan is to avoid putting
employees, contractors, vendors or yourself at odds with one another, creating
the need for litigation to resolve issues. Communication is your best tool, and
honesty your best policy.
- Once your operations have been shut down, you can begin disposing of or
transferring assets according to your plan. Remember, this is an important tax event and if done correctly, will reduce your tax responsibility. This is also when most insurance coverage can be reduced or eliminated.
- You need to satisfy and pay all remaining Accounts Payable and debt obligations
from the proceeds you receive through the sale and transfer of assets along with
capital in the company’s bank account.
- Finally, prepare the financial statement and balance sheets required to file the
final business tax returns. These financial statements and balance sheets
determine the taxes owed for the business and capital gains or losses on asset
sales for the company, its principals and stockholders.
- Many states require a company that is closing to file Articles of Dissolution. This
formal filing is required to terminate the legal and tax status of the business. You
may file Articles of Dissolution, Certificates of Withdrawal, and/or Cancellation
Certificates. This process also results in a review of tax liabilities, and issuance of a tax clearance notice or certificate. Consult an attorney or CPA to be sure you do this correctly.
- Prepare and issue special filings, notices, informational returns, and taxes as
required by the type of business entity under which your company was organized. The best way to be sure you don’t miss anything is to look back at the licenses,
bonds and permits required at the company start-up. Generally, some action is
required regarding every federal and state registration, tax, and licensing agency
which you contacted in order to start the business. Final filing of payroll and
unemployment taxes, workers compensation insurance certificates, required
liability insurance and other business tax returns must indicate the business is now
- Close bank accounts by distributing the remaining funds according to the
agreement reached by all principals, partners and stockholders.
- File and store all business records and copies of files in a safe, accessible location.
These records should be kept for at least seven years.
As you can see, closing a trucking business is equally as involved as the process of starting one up. Doing it correctly can save time, money and legal fights in the future. There are transitional times in everyone’s life, but when you’re a business owner, if you’re closing your motor carrier, do it with a complete plan so you’re not left standing in the middle of the business interstate, out of financial fuel and no planned direction.
Good loads and good roads, everyone; or in this case, God speed in your next adventure.
Timothy Brady © 2010