Closing your business? Plan to allocate adequate cash to your own needs.

Transition, the time between major changes…when critical decisions are made. Its a “no mans” ground were you are no longer committed to the original mission. You have spent significant time, expended much money, acquired much debt and now have made the hard decision that supports your ending one program. So what are your obligations regarding the remaining cash and the accounts receivables? In fact what are your obligations regarding all the assets of the old company? First the secured creditors must be considered, then the unsecured, however within these considerations are you able to divert cash to your own personal needs and requirements? In the moment you decide to end the business you are free to make certain important decisions. Its your cash and presumably it is your decision as to what to do with it. It is unlikely you will have adequate cash to pay of the secured parties, but its still your cash and you are entitled to make an assortment of decisions regarding what you will do with it. Simply put, as you will be required to confront your secured lenders who have your personal signature, so a workout of some sort must be initiated, but that still does not answer the question of what you may do with the final cash. There are those who will claim that once you are not making business decisions in the due course of business you are obligated to hand over the cash collateral to the secured parties. This may be so, but we still have a transitional moment when you are still doing business but have decided to terminate it. Sometimes there is not a date certain that this happens and frequently it takes time to arrange your affairs and make all the micro decisions required to end one business and start a new life. So there is a time allocation here for the transition to take place, while you are still doing business but have an adjusted end vision. Thus for all the investment you have made and all the cash you have not taken, and all the unpaid hours, there is no reason you cannot allocate adequate reserves to your own accounts to assist you in making this transition safely and soundly. Is this appropriate? I say absolutely yes. While you owe a debt to your secured creditors, you will require a workout with them, and thus the issue is open. You are still indebted to them and personally owe. Are you required to hand over every penny and sell all your possessions to pay the secured debt? They will say yes, I say No! I believe reasonableness is the benchmark but the bottom line is, its your cash and you are entitled to make distribution decisions as you determine is in your own best interest, including to yourself, while still acknowledging you have a debt to the secured parties that will not end with the business ending and must be dealt with. This does not mean ordering more inventory knowing you will not be around to pay for it, and selling the inventory with the intent of taking the receivables is ok, it isn’t. That is wrong, as is racking up charges on your credit cards for personal needs knowing you are unlikely to pay them off. Selling existing inventory and when the cash comes in paying yourself as much as you can is a reasonable decision. The best decision may be a slow wind down, with a steady decrease in overhead as you reduce your payroll, cease all advertising, selling some assets, and paying yourself well, as you cut costs, reallocating the savings to your own needs. Its a combination of doing the right thing, avoiding abuse, and taking care of yourself, its an acceptable decision to make. Its the right decision to make. It is a difficult blending of needs, wants and responsibilities. You are empowered to allocate the cash and receivables as collected wherever you deem them best spent. This is your absolute right. This decision is no different, just remember the controlling factor, do not be a hog. You still have to deal with the secured creditors and thus that issue does not go away, the unsecured are at risk, and you have the right to make yourself a high priority and allocate what you can to your own personal needs. Its your business. You must keep your secured creditors in mind, dispense with the unsecured and stop buying and spending as you shift resources to your own personal needs and requirements. You have sacrificed for your business and have invested heavily, it is ok for your business to pay you back. Call me to help you evaluate this and create a plan. 413-549-2966.