A Step-by-Step Plan to Help Close Your Business Down the Right Way
As a business owner, you’ll likely face a time in your life when you consider closing your business.
Maybe you’ll want to retire and aren’t worried about selling your business. This is often the case with professional services businesses where the sole owner is also mainly responsible for running the business and providing services and can make the decision to close on their own.
Maybe the business has no future revenue – contracts have expired, or the business was set up for a specific purpose or project, which has since been completed.
Maybe you’ve realized that demand for your products or services has dropped, and you want to pursue other interests.
Regardless of the reason, once you’re sure that closing is the way forward, it’s best to set a date for when you’ll stop trading. Doing so gives you a definite end date for all your obligations and enables you to set a timeline for all vital activities to be carried out. Check with your advisers or accountant if there is any tax benefit for ceasing operations in a particular month.
If you have staff, break the news gently before you close, giving them as much time as possible to develop and implement their plans. Document all your employees’ pay and leave entitlements beforehand so you can answer any questions they may have. Make sure you provide employees with any necessary paperwork so they can obtain benefits they’re entitled to. Depending on your business, you may have obligations under the Worker Adjustment and Retraining Notification Act. Make sure you understand how and if it applies to you.
Next, let your suppliers and customers know about your closure. You should tell long-standing customers in person before mass emailing all customers and suppliers or announcing it on your website and social media.
If you have a lease on your business premises extending past your closing date, you’ll ideally want another business to take over. Finding someone to take that obligation can be the trigger point for a closing down date. Remember, the landlord usually must agree to assign the lease to someone new.
Regardless of when you’re closing, talk to your bank, lawyer, and accountant as early as possible to seek further advice. It’s important you’re aware of any legal or financial obligations you must meet before you close your business. These obligations may vary depending on the state you operate in.
Sell assets and pay debts
Start selling the assets your business doesn’t need before closing, such as excess stock and equipment you rarely use. Then, once you’ve ceased trading, sell the remaining assets, such as computer equipment, office furniture, and vehicles. If possible, find buyers for these items before you close.
It’s then time to pay any outstanding debts, which could include:
- Final rent payments
- Utility bills (power, phone, internet)
- Rates, insurance
- Unpaid invoices from suppliers
If you have any creditors you need to make arrangements or negotiate settlements with, do so as soon as possible. Cancel any automatic bill payments, as well. Inform all service providers, such as utility companies, insurance providers, and internet service providers about the closure.
Cancel on-going agreements
There could be several contracts, services, direct debits, or subscriptions you’ve signed up for that should be stopped, some of which may require advance notice. Examples include:
- Any software or online subscriptions
- Leases (commercial and vehicles)
- Service contracts
- Hire purchase or financing
Check for any penalty clauses for breaking an agreement early. It’s a good idea to seek legal advice when you finalize your legal and contractual matters because there may be obligations for you to fulfill in ensuring proper termination or transfer of your agreements. A lawyer can advise you on your rights and your responsibilities.
File final taxes
Completing your final tax returns and paperwork will vary depending on the structure of your business, as sole traders, partnerships, and companies have slightly different rules.
You may need to:
- Pay employees their last pay
- Pay final employer-related taxes
- Report payments to contract workers
- File your final tax return
- Cancel your EIN and close your IRS business account.
Failure to follow these steps could result in penalties, a tax audit, or even legal action, so you must check that you’ve done everything correctly.
If you have a company you want to de-register, make sure:
- The company is no longer in business
- All your business debts are paid
- The company has distributed its assets
- There are no creditors (people you owe money to).
Your accountant will be able to help you if you need clarification. Filing dissolution documents, which dissolve an LLC or corporation, ensures you won’t face ongoing tax bills and filing requirements.
Commence the closing down process
Contact your bank to decide when to close your business accounts and any business credit cards or other services that need to be terminated. Also, notify suppliers to close any business accounts you may have left open.
You’ll also need to store your business records, tax returns, and other evidence for several years in case the IRS decides to audit your business. Keep them in a safe place.
The Small Business Administration has tips on closing your business, which may be useful.
While closing your business may not be the easiest decision you’ll face, making a plan and sticking to it will help things go smoothly – allowing you to move forward with your new plans worry-free. Make sure you get professional advice from your lawyer and accountant regarding your financial and legal obligations, so you know when you close your doors you’ve done so properly.
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For informational purposes only. There is NO WARRANTY, expressed or implied, for the accuracy of this information or its applicability to your financial situation. Please consult your financial and/or tax advisor.