Whether you are drowning in debt or simply ready to retire or move on to other projects, closing your business can free up your time and money and allow you to focus on something new. Closing your business the right way does take time, and you will need to consider everything from taxes to final paychecks and even your excess inventory along the way.
You did not decide to close your business overnight or on a whim; most closure decisions come only after long periods of work and reflection. A lot of thought and effort goes into trying to make a business a success, so when things do not work out or you are ready to move on, it will take some additional time to close things down properly. Taking the right approach when you close your business allows you to proceed in an orderly fashion; protect your own assets and investments; and even provide the best possible outcome for your employees, partners, and investors.
You cannot just lock the doors and walk away. You need to take the time to untangle your assets and involvement and make sure everything is completed properly. The right shut-down process will let your customers and your creditors know that you are closing and can limit your risk of lawsuits or other legal issues as well.
No matter what business you are in, you will need to consider each of the following items and check to make sure you have covered everything you need to. Some of the below items may apply to your business more than others, but carefully considering each can ensure you have covered all the bases and fully protected yourself when you close up shop.
Begin collecting any outstanding balances or accounts receivable. If you have any accounts in collections, now is your last chance to get paid before you close. You should take this step before you do anything else, including notifying anyone that you are closing. If someone knows you are closing, they may decide to wait you out rather than pay what is owed and ignore your bills entirely.
For aging invoices, offer discounts as an incentive to pay quickly. This approach can also help with accounts that are behind, but not yet in collections. It may be time to make some phone calls or send emails to accounts that are behind. Doing some internal collections work can help you finalize any accounts receivable and ensure you receive as many payments as possible before you close for good. Accounts that are aging and not good candidates for collections could be sold to recoup some costs.
Letting everyone you work with or for know that your business is closing is more than just a courtesy. It can limit the amount of time a creditor has to collect any debts that you owe or that anyone has to sue you for your company’s debts or liabilities.
You can also let the public know via a press release or on your website and social media channels. If you have inventory to sell, making people aware of your pending closure can help you recover some revenues and offload assets as you close.
This is also the time to complete all in-progress jobs or assignments and to deliver any orders that were paid for but not yet completed. If there are jobs you have taken deposits on or will be unable to complete, you will need to issue refunds to those customers.
Consider launching a “going out of business” campaign and sale and getting rid of inventory. This will bring in additional revenue, and you will be able to dispose of excess inventory and even other assets like equipment and fixtures. Selling off these items can help offset your losses.
If you lease property for your business, you will need to terminate your lease. Give your landlord the notice required in your contract, and your closing date. Most contracts specify at least 30 days’ notice, but check your lease for exact details.
Let your team know that the business will be closing. Many will stay on as long as you keep paying them to help you wrap things up. Pay all employees as usual, providing final paychecks on either their last days or your last day of business. Make sure you know how much to pay and what vacation and other days you need to pay them for as well. State requirements vary, so ensure you know what to do about vacation time that has been accrued but not used.
Liquidating assets could include any physical property your business owns that is not inventory. Vehicles, equipment, computers, and even desks and chairs can be liquidated to boost revenues and help you walk away with more money when you close your doors for good.
If you are closing for financial reasons, you may have more creditors than you are able to pay. Start paying any debts you can, beginning with those that would be your personal responsibility if left unpaid. Money owed to your bank, your landlord, or utilities that are in your name should be a priority as you could be held personally responsible for these debts. Pay as much as you are able, and prioritize based on your personal level of liability for best results.
Cover your federal and state payroll deposits and any related outstanding fees once you have issued final paychecks. If you are low on cash, an Offer in Compromise may be filed with the IRS (via Form 656). If you have filed for bankruptcy in addition to closing your business, you will not be eligible for an Offer in Compromise. Instead, apply for an installment payment plan (Form 433-A) if you need more time to pay.
Submit your last sales tax forms to the state, along with any taxes you have collected. This is also the time to talk with the state taxing agency to see what you need to do to close your account for good.
Once you have paid all debts, taxes, employees, and loans, the remaining money can be distributed to the owners.
Finally, don’t forget to tie up all other loose ends, such as canceling your business licenses, closing your bank accounts, and canceling your other monthly services and utilities.
Learning more about the closure process can help ensure you do not miss out on anything essential or end up liable for more expenses than you expected. Taking the time to thoroughly plan your closure, from collecting your outstanding debts to dissolving your partnerships, ensures that you stay in control of the process and that you mitigate any risk you could face.
Closing your business is a big step, but by carefully planning your approach and taking steps to limit any personal liability, you can get out from under an ailing, failing business without damaging your personal assets. It is worth it to do things right from the start and to carefully consider all the factors involved as you work through the process. Once your business is closed, you will have the peace of mind that comes from knowing you did everything right and that you limited your personal risk as much as possible.
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