It may seem odd to move from keeping your project going to closure! But perhaps we all benefit from understanding how to finish our projects. The community sector is particularly prone to organisations that continue well past their sell-by date.
What I say here about finishing applies just as much to businesses as it does to community organisations. The big issue for businesses is cash flow. Failure to make sure cash flow can bring about a sudden end to a business. Maybe cash flow is not so crucial for community organisations; it depends on how they are funded.
Equally though healthy cash flow can keep a business going even though it has lost sight of its purpose. Perhaps most business people would see healthy cash flow as a reason to keep something going and perhaps build a new strategy upon it. That is a good and proper response and reinforces my main point, planning is important. If it is inevitable a business or organisations must close, then plan it. Don’t leave a bad organisation to drift.
Planned Closure
Do not be afraid to close an organisation or business. It is better to read the signs and close than allow your organisation to drift into oblivion. The first thing you need to do is decide. Then plan how you’re going to do it and do it.
Planned from the Start
Some organisations are able to plan closure from the start! They exist to meet some goal and once it is complete, the organisation closes. This means closure can be included in the original business plan.
There can be many advantages to working this way. Everyone knows what they’re letting themselves in for and understands their role through to the end. There are no unrealistic expectations and perhaps a focus on team work and not so much organisational reputation.
Of course, this is perhaps easiest where an organisation has several projects on the go and needs to keep stock and end projects once they have completed their purpose. The organisation itself has an open-ended lifespan but plans projects with life-cycles. Loyalty might be to a team of people and not so much to what they are doing.
Planned as a Response to Changes.
Perhaps most businesses and organisations do not have a planned life-cycle. This is not a problem so long as they produce and interpret management accounts. Management accounts enable managers to see trends and respond to them. Many organisations keep going for many years because they monitor and respond to trends.
When it becomes clear your organisation is no longer viable, you need a plan. It is not a case of keep going until the bank account hits zero. You need to factor in the costs of closing. Staff will need statutory redundancy notice and are entitled to redundancy payments. It is possible to calculate roughly what these costs are likely to be and many organisations hold this sum in reserve. This means they know they can cover the costs of closing, so long as they don’t spend their reserves.
Organisations registered with Companies House have limited liability and this is a possibility for community organisations as well as businesses. This means members are responsible for business failure but only to a limited amount, commonly £1 or £10. There are various ways you can manage this and it is always worth considering options where you have significant cash flow or staff.
Unplanned Closure
Without management accounts organisations are flying blind. You really don’t want to do this, especially if you employ staff. Handing them their cards on a Friday night, without notice is not a good place to be in. Don’t kid yourself, you cannot steer the organisation away from bankruptcy at the last-minute.
Usually the reason for unplanned closure is cash flow gets out of hand. On paper, you might be an affluent company, but if you have no cash in hand, you will be in trouble. You may have plenty of clients on your books but if income from them is not available, you may find paradoxically you must close even though in time money will come in.
I’m not going to go into all the reasons why cash flow fails. Let’s just say management accounting should pick up issues before they become critical. If you’re not chasing your debtors, your accountant should point this out!
Forced Closure
With no planning and no monitoring you can put yourself in danger of breaking the law. This is why forced closure is not desirable and should be avoided at all costs. There are end creditors who will insist upon payment. If you use management accounts you can schedule these payments into your financial planning.
The problem for many communities is businesses may be reluctant to pursue money because they know if their debtor go under, they will not receive the full amount. You can end up with chains of businesses, where they’re waiting for someone at one end to pay their bill, so that the finance can be passed down the line.
If the business that owes the money at one end goes under, it can take down several other businesses, even businesses with which it has never had relations. When we fully appreciate the impact on others of our own failure, perhaps there will be a greater incentive to plan and monitor performance.
What is your experience of well-managed project closure? Do you have any advice?