Company Wind Down Best Practices  

Nobody enjoys contemplating a business’s failure, but it’s a possibility even for the biggest and most complex companies. When dissolution is imminent or inevitable, there are ways to plan proactively to help minimize financial loss, meet legal obligations, optimize asset valuation, and protect a company’s reputation and relationships. 

Because the process is so complex, having the right expertise is key. Critical project management skills can also ensure a structured approach, so all aspects—from cash flow management and asset liquidation through employee termination—are managed properly within a tight timeline. Once executives and board members are aware that dissolution might be imminent, reach out to a professional who understands best practices, timelines, and relevant parties in the process including regulatory agencies and attorneys. 

Wind Down Best Practices 

Business wind down is a multifaceted and time-intensive process that comes with an extremely tight timeline. Even after the bulk of the work has been completed, there will be items that straggle along. When working on a project of this magnitude, it is helpful to break tasks down into smaller, more manageable parts. 

Best Practices for Winding Down Personnel

One obvious consideration is the effect on personnel. At the outset, determine who in the labor pool is needed during the process through the end including anyone highly valued or who could easily secure another job. Then thoroughly vet all staff on payroll, outlining each employee’s responsibilities as well as their performance in conjunction with HR or your HR firm. Who will you need immediately? How long will you need them? What COBRA, payroll, W-2, or EEO requirements will need to be considered? Then develop a plan to roll out employee terminations, calculating severance and working closely with accounting and HR on all details.  

Once you have a plan in place, clear communication is key. Make sure employees learn the news through formal communication channels to avert rumors or misinformation. As you communicate plans and timelines with team members, make sure they have enough information to determine whether it benefits them to stay on board through the end. 

Managing Assets and Liabilities During Dissolution

As you work through details, invite the right stakeholders to the conversation, analyzing the company’s balance sheet and determining true liabilities. Note that there is a potential that certain liabilities may be unrecorded or understated. It is prudent to assess if there are potential liabilities that may not be reflected on the balance sheet depending on the completeness of the latest financial close. Next, list all liabilities that will need to be settled and ask yourself: Will we keep the office(s)/real estate? If we have a lease, would the lessor release us from those terms? Could we sublet unnecessary space and, if so, what is the process? Have we customized offices, labs, retail spaces, data centers, manufacturing or distribution facilities, commercial kitchens, or medical spaces and, if so, could those facilities be sold as is or would they need to be renovated and returned to their original state? Should any utilities, maintenance, or cleaning services be cancelled? 

Within each space, compile a thorough inventory of equipment owned by the company. Will anyone need this equipment during the next three to four months? Could it be sold? Should subscriptions, permits, memberships, or licenses be cancelled? 

Take a close look at critical vendors and payment terms, monitoring burn rate and assessing the company’s cash situation throughout the wind down process. Which vendors are being used, and what services do they provide? Are they still required? Are you locked into contracts or other requirements? When did you enter sales agreements and for what value? Are there opportunities to sell any parts of the business, such as product lines or intangible property? Which assets would be included in a potential liquidation of assets? AR should be reviewed after the wind down to monitor cash collections.  

Optimizing Cash Flow in a Business Wind Down

Revisit and refine cash flow projections weekly if not more frequently based on changing circumstances. While transaction advisory, asset sales, and mergers are a separate consideration outside of AAFCPAs’ OAFC practice, a portion of the business could potentially be acquired or sold. So, consider opportunities to sell your product line or something you have developed to boost cash flow. Could another company acquire your product line? Could patents or intellectual property be sold? Would anyone be interested? What are they worth? Consider tax credits, as well, and whether equity in the company could be sold. Closely monitor customer receivables and other items owed to the company to ensure all amounts due are collected timely.  Continue to evaluate cash flow and cash requirements based on certain assumptions even if you’re not making a profit, including cash flow needed for final expenses. 

Operational Considerations for Business Closure

Before losing key personnel, consider everything you might need from them, such as account access or bank logins. If the company has employees/operations in multiple states, close state accounts so tax authorities won’t contact you for returns. Consider data and servers, as well, along with requisite data access. How long will you need access, and which files should you retain?  

When it comes to insurance, should you cancel general liability, worker’s compensation, or cyber liability policies? Do you need to continue coverage through lease termination, or should you cancel and open a new policy while real estate winds down? Do you need a tail policy, what would this cost, and should this be built into your model? Have you acquired estimates, and when are payments due? Should you secure a separate D&O policy? Will you need to file final tax returns or other compliance related forms?   

In addition to insurance, analyze any open bank accounts, detailing which accounts are open at which institutions. Should any be closed? Who’s an authorized signer, and should this change? Which vendors are paid through which bank? Could you change payments to another?  

Be mindful of smaller requirements, as well, or those that fall outside of your big picture list, such as final payments and customer receipts along with client and vendor relationships. 

[This best practices blog is designed to be operationally focused and does not include insight into the liquidation basis of accounting. Under the liquidation basis of accounting, assets are recorded at the amount of cash that they are expected to generate from selling them, and the liabilities are recorded at the amount of cash that they are expected to pay to settle them. Some assets that were not previously unrecognized may also require consideration.] 

How We Help 

When winding down a subsidiary or company, leadership often needs much more than in-house resources. They need operational experience and expertise to deliver strategic insight, navigate complex financial decisions, and maximize value recovery.  

AAFCPAs provides consulting CFO support including specialized leadership in business wind down. As soon as you begin to consider this as a viable option, contact us. We understand the end-to-end process, working closely with senior executives and board members to physically wind down operations and ensure an efficient and smooth transition. Proactive planning is necessary to wind down, optimize resource allocation, enhance decision-making, and proactively anticipate challenges on the horizon.  

If you have questions, please contact Destiny J. Flood, CPA, Partner, Commercial Outsourced Accounting & Fractional CFO at 774.512.4151 or dflood@nullaafcpa.com, Terri Delaney, Consulting CFO at 774.512.9035 or tdelaney@nullaafcpa.com—or your AAFCPAs Partner.