ShutDown Decision (Short term Decision)

What Things To Consider Before Shutting Down?

What things would you take into consideration before shutting down a department, product etc. Will the decision be permanent closure or just a temporary closure?.

In practice shutdown decisions may involve taking capital expenditures and revenues into consideration. Like maybe shutting down a department could resulting in saving its annual operating costs, or you could use the fixed assets which are idle due to the closure, in other projects which are more beneficial or could also sell them off. Also closure of department means making the employees redundant which results in redundancy payments.

You need to analyze the financial aspect of the closure properly before making a decision, .e.g closing a department would result in $50,000 saving but redundancy payments add up to $70,000 resulting in a net loss.

Remember, while making business decisions considering financial aspects is not enough, non-financial aspects should be given equal importance. In modern time, business focus more on non-financial side than on financial side, .e.g better customer support, better quality goods, environmental friendly goods. In recent times non-financial side of the business has gained immense importance.

What Else Should I consider before making a shutting down decision?

• Timing
• Qualitative Factors
• Judging Relative Profitability

Timing:
An Organization should consider the most appropriate time for its shutting down. Appropriate means, the time when closure would result in low closure cost. Some of these costs can be avoided while others cannot. The management should consider both the avoidable and unavoidable costs, and make a sound decision.

Qualitative Factors:
As stated above, that when making a decision not only financial but non-financial aspects must also be considered. Before closing down a business should consider a few points such as:

• How will employess react to the closure?
• How will this affect the image of the company?
• Will customers lose their confidence?

This is not an exhaustive list, there are many other factors to consider.

If you have any queries or suggestions please leave a comment below.
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