The financial hurdles ahead if it’s time to close your business


APRIL, 2021

closing your business - PJ Lynch

Facing up to your business’s financial woes now could save your home or pension, writes Louise McBride

Published in Sunday Independent on February 07 2021

The extended lockdown could be the final straw for many businesses. There is growing concern that it could be early summer before a lot of businesses – including hotels, restaurants and pubs – will be able to reopen this year. Many have been unable to reopen meaningfully – or at all – since the pandemic struck last March.

“A lot of businesses are simply hanging on and if their circumstances deteriorate anymore, they’ll fall off the edge of the cliff,” said PJ Lynch, owner-operator of Dublin liquidators, PJ Lynch & Co. “If this [inability of businesses to open] goes on until May or June, many just won’t survive. Restaurants and high-street shops have been especially impacted by the lockdowns. People in the building industry will be affected as the lockdown goes on.”

Despite the pandemic, there was only a small increase in the number of Irish companies being wound up last year. Liquidations numbered 575 in 2020 – up from 568 in 2019. However, government and other supports allowed a lot of businesses to avoid closing last year – and once these supports dry up, many could go to the wall. There are fears that 2021 could be the year that the full toll of Covid becomes evident.

“From March 2021, I think we will see a big increase in liquidations,” said Lynch.

Dublin firm, Friel Stafford, has liquidated hairdressers, fashion retailers and restaurants since last March.

“This crisis is very different from 9/11, the dotcom crash and the 2008 economic crash,” said Jim Stafford, the company’s managing director. “This time, we are dealing with many second- and third-generation businesses who were prudent but are now being economically wiped out. It is very emotional for second- and third-generation businesses to be faced with the prospect of closing a proud family business.”

Many of the small businesses struggling now are sole traders and limited companies. Should you be one, how can you decide whether or not to continue – and what are the main financial issues that you need to address if you make the difficult decision to wind up your business?

closing your business - PJ Lynch

Do a forecast

A forecast is your estimate of what lies ahead for your business – including sales, expenditure and profits. This should help you determine whether or not your business has a future. “Your forecast should be based on realistic assumptions,” said Stafford. “Do not be over-optimistic about the projected ‘bounce back’ in the economy. You need to take account of how Covid has changed consumer habits. For example, eating habits are likely to change as a result of the pandemic and this will impact restaurants – with a possible shift from city centre restaurants to suburban restaurants. The travel and tourism and hospitality industry has been significantly impacted by Covid. Do a forecast for your business sector and identify the trends that have developed as a result of Covid. Then assess if you can make your business viable.”

You should also consider the impact of Brexit as the departure of the UK from the EU will have a devastating impact on some businesses.

“When your forecasts are done, ask if there is anything you should be doing differently – such as expanding your product range or strengthening your online presence,” said Stafford. “A critical question to ask is could you earn more money by becoming an employee of someone else – we frequently meet entrepreneurs who earn less than their staff.”

Weigh up your debts

It’s important to find out if your business is solvent (able to pay off its debts) if you are considering winding it up. “If you can pay off your creditors in full, you can close quite easily,” said Stafford.

“If you are a sole trader who can’t pay off debts, you are personally liable for the debts.”

A sole trader who is heavily in – and unable to manage – debt should contact a Personal Insolvency Practitioner (PIP – a type of debt advisor) to see if it is possible to strike a debt deal with his bank and creditors. Sole traders in financial difficulty can also get free guidance from Chartered Accountants Ireland Voluntary Advice (CAVA). To get an appointment with CAVA, first contact the Money Advice and Budgeting Service or your local Citizens Information Service office.

Winding up business

There are five big financial issues which must be dealt with should you make the difficult decision to wind up your business.

1)  Stock:

“One of the first things you should deal with is whether or not you need to hand back stock to creditors,” said Stafford. “A sole trader or limited company may not be able to sell stock if it still belongs to the supplier – and so stock can be given back and used as part-settlement of the debt. If a sole trader still has stock left over after that, he can sell it. If a limited company is insolvent and still has stock left over, the liquidator can sell it.”

2)  Rent:

“If you’re renting a business premises and have decided to wind up your business, you need to deal with your landlord,” said Stafford.

“For a sole trader, that usually involves handing back the keys of the business premises and agreeing a deal with the landlord on any rent owed. For an insolvent limited company, the liquidator deals with the landlord – however, if the directors have given personal guarantees around rent, they have to make a deal themselves with the landlord.”

3) Redundancy:

Redundancy must be addressed – if you have staff. “The most emotive issue to deal with is employees,” said Stafford. “If employees are employed for more than two years, they’re usually entitled to redundancy.

“A sole trader is personally responsible for these redundancy payments – but if he’s unable to pay, he can contact the Department of Social Protection (DSP) and come to an arrangement to have DSP pay the redundancy. However, if coming to such an arrangement with the DSP, the sole trader will need a letter from his accountant saying he doesn’t have enough cash to pay the redundancy. If it’s an insolvent limited company that’s involved, the liquidator deals with the issue of redundancy – and processes claims through the DSP.”

4) Tax:

Before winding up a business, sole traders must ensure their tax affairs are in order. So tax returns must be up-to-date and any tax owed by the business must be paid. Where a business is unable to pay the tax owed, a deal should be struck with the Revenue Commissioners to repay the debt over time.

“Once a sole trader has ceased trading and dealt with all his employees and sold his stock, he should deregister the business for VAT, PAYE and income tax purposes,” said Stafford.

The tax affairs of a limited company are generally handled by the liquidator when the business is being wound up.

“In a limited company, the liquidator will deal with Revenue,” said Stafford. “Generally, directors of a company are not personally liable to creditors, provided they have not traded recklessly or provided personal guarantees. However, the Revenue will pursue directors personally for any PAYE deducted from their salaries if it has not been paid over.”

5) Bank:

“If you’re a sole trader and you owe money to your bank, you need to deal with the bank and come to an arrangement around the money owed,” said Stafford. “If it’s a limited company, the liquidator may agree the liability with the bank. The directors may be personally liable in respect of any personal guarantees.”

Be Realistic

It is very important that a business doesn’t continue to trade when it is losing money – and likely to continue doing so in the future. “We have seen too many cases of directors losing family homes and their pension funds as a result of putting good money in after bad,” said Stafford. “A big issue for entrepreneurs is that by definition, they are optimistic – but in the ongoing climate, it’s important to be realistic about closing your business.” There have been many bitter pills to swallow in the ongoing pandemic – but if the writing is on the wall for your business, winding it up sooner rather than later should give you a better chance of starting afresh.

closing your business - PJ Lynch
PJ continues: A liquidator is the undertaker of the business, all the records are taken away in box and it can be a very difficult time for the directors but it is important that a recognised  liquidator is appointed to ensure the process is fully compliant.”

PJ Lynch

PJ Lynch Company

•  PJ Lynch, a licensed Insolvency Practitioner, is principal at PJ Lynch & Company at Westland Square in Dublin 2.
Tel (01) 707 9662 or email

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