Business closure analysis
One of the key areas of enterprise risk management is conducting business closure analysis (shut down analysis). Most managers don’t want to talk about it. Howeever, in some industries there are external risks (unrelated to the company’s operations) that may necessitate a sudden stop of business.
In this case, it is necessary to conduct a closure analysis to obtain information about the consequences of such action. So this is the reverse of a development business plan. In this case, a business plan is created in the event of termination.
Because closure analysis is a black vision of the company’s future, managers are reluctant to perform such analyzes. However, such analyzes are recommended for enterprises operating on an unstable legal and economic market, as well as on a market which is subject to dynamic change in purchasing trends. In the latter case, this may apply not only to the entire enterprise but to its individual business lines. In today’s economy, many enterprises can be mentioned, which for various reasons closed the production and sale of specific product groups. This certainly resulted in a number of financial consequences that the closure analysis can be used to predict and estimate.
The closure analysis should include the following:
- Analysis of the company’s economic environment.
- Description of the legal environment.
- Factors affecting purchasing trends.
- Risks that will arise from the need to close the business.
- Determining the minimum business profitability ratios.
- Determining the procedures to be followed in the event of a business being closed.
- Analysis of the financial consequences of closing the business.
- Analysis of the legal consequences of closure.
- List of indicators for monitoring the company’s situation in terms of the risk of closure.