Sole Trader closing down

Hi,

I am a sole trader in a rural town - retail business (fashion and footwear) and have spent this weekend making what for the past year has been an inevitable decision to close. I opened my business early 2008 and trade was booming until September 2009 when things changed and have gotten progressively worse since then. At first I thought I would be able to trade through it but I feel now I would be better closing before I get into a worse position. We are closing purely because of poor sales. The customers that we do have are very happy with the product we sell and selection that we provide but, and this is the crux of the problem, people just don't have the money to spend anymore, therefore we don't have the money to buy new stock or to pay suppliers. We have tried various promotions and different things to try and generate better sales but at the minute nothing is working.

Our weekly takings are just about paying for rent, rates, wages for 1 pt employee etc but there is nothing extra to pay for stock. I myself haven't taken a wage since October 2009. I have managed to pay for all stock ongoing up until this winter. In other years our summer season would yield enough income to cover all new winter stock but not this year, so I have been struggling to pay suppliers and its just so hard. I find myself avoiding calls for suppliers as I know they are looking for money that I just dont have.

On paper it looks as if the stock we are carrying would cover all loans and monies owed (stock value 65k cost. loans and monies owed 60k) but my fear is that even by having a closing down sale we would have to let some stock go at way less than cost just to get rid of it and therefore be left with a shortfall which personally we couldn't absorb as my husband wages are already covering all household bills etc at present.

I know as a sole trader I am liable for all business debt but I was just wondering if there is anyone out there in the same position or has come through the same problem? Any advice would be appreciated as I am at a loss as to how to solve this problem. I have spent the last few days in tears at the thought of having to close my business but I can't see anyway out of it.

BTW so sorry for the long post.

Hi Daibh

First of all, I think you should realise that business failure is sad and financially expensive, but there is nothing at all to be ashamed of. Many businesses fail. In America, it's seen as a badge of honour. If there was no dishonesty involved, then you can hold your head up.

There is a Key Post on business viability which might be of some use, although you have already decided that your business is no longer viable.

I think you should speak to your major creditors immediately and be upfront with them. Give them a choice - they can have the proceeds of sale of their stock or they can have the stock back.

You will still be personally liable for any debts but you should be able to negotiate a reduction from creditors. If you are upfront with them, they will probably be flexible.

The lease on the premises may be the big problem if you can't pay the rent.

Do you have other assets with which to offer a partial payment to creditors? For example, do you have equity in your home?

If you show your creditors that you are doing your best, most will be reasonable.

Brendan

we closed down our business last year and owe alot of $$ to creditors. you are liable for everything period.....as brendan said you can do deals with creditors as we did but still along way to go but being a sole trader aint fun when things go wrong. others can walk away but not STers.

speak to creditors and tell them your closing- ask them for up to date statements- tell them you will pay them x amount a week or if you have any cash offer them a final payment but do not offer the full amount! if you owe 10k and have 7 cash then offer 7- youll be suprised

It might be worth having conversations with suppliers. You might find that they are willing to accept return of stock and give you full credit for it: they could see it as a safer and easier way to deal with you than taking their chances on the results of a closing-down sale.

Thanks for your replies.
I have spoken to a couple of my suppliers today and while some are willing to take back some stock - others are willing to wait for their payments.
As for rent, the landlord is a relation of mine and we pay on a weekly basis with no formal rent or lease agreement so as long as I give notice of a few weeks that's sorted.

I really do hope that the proceeds from our closing down sale will cover all monies owed but if it doesn't, what would be the best way to sort this? We built our home 8 years ago and have a 200k mortgage on that. We own an 06 car and thats it. We dont have any other assets or money stored away anywhere. We have three young children and my husbands wages just about keep us living. Could we be forced to sell our home to pay off debts - even if the debts are as little as 10 or 20k?

All advice is welcome as I have never been in a position like this before.

Hi Daibh

Talk to your mortgage provider and explain the situation. They may agree to switch to interest only for a period to allow you some extra cash to pay your creditors. They might even allow you a payment moratorium.

A creditor will probably go to court to get a judgment against you.
Check the Key Posts to see what to do if that happens.
They could then register the judgment against your home - although this is unlikely.
Theoretically, and it's very theoretical, they could seek the sale of your home. However, no judge would grant this, so they won't seek it.

Even if you can't pay your creditors, stay in touch with them and try to keep them onside. What really annoys them is when they don't know what is happening.

Brendan