We recently looked at the emotional side of closing down a business, but what about all the logistics? Believe it or not, closing a business is a multi-step process that’s going to take up a lot of your time, energy, and yes, even money.
Today we’ll walk you through everything you should know to avoid financial issues and legal penalties that can result from your business closure. While we don’t recommend doing this all by yourself (you should at least work with a lawyer and a CPA), it’s wise to understand what you’ll need to take care of in the coming weeks and months.
How to close down a business:
1. Get all decision-makers on board
If you’re the only person running the business, you can decide to close it yourself. Otherwise you’ll need to talk to any partners and investors about the decision first, and follow the business closure process you outlined in any written agreements.
2. Let your staff know
Tell your employees as soon as possible; you don’t want them to get the news from anyone else but you. If you’re looking at mass layoffs, you’ll need to make sure you comply with employment and labor laws, which includes making the proper employee payments after closing. Check the U.S. Department of Labor’s Employment and Training Administration Fact Sheet for more information. In general, if you employ over 100 people, you’ll need to provide at least 60 days’ notice of closings and mass layoffs.
3. Alert your customers and begin closing customer accounts
Let customers know about the closing in a fair amount of time so that they can begin making alternate arrangements. Closing a business is difficult for you, but it’s also going to be difficult for the customers who have come to rely on your services or products. Do not leave them stranded at the last minute.
4. File dissolution documents
If your business is registered as an LLC or corporation, you’ll have to file for dissolution in the state where you registered the business, or you’ll be on the hook for continued taxes and business debts. The rules for filing a Certificate of Dissolution vary from state to state: some require you to settle creditor debts before you file for dissolution, while others require you to file for dissolution first. Be sure you check your state’s rules to be sure. Sole proprietors do not have to file anything with the state.
5. Take care of tax requirements
You’ll need to submit your final income, sales tax, and employee tax returns to the state and federal government, cancel your Employer Identification Number (EIN), and report the sale of any business assets—among other things. To make sure you don’t miss a step, review this IRS checklist.
6. Cancel business licenses and permits
You will have to cancel with any agency that issued you a license, registration, or permit. This will keep anyone else from using your business name or account—which can hurt your reputation and leave you on the hook for various taxes and penalties.
7. Pay your outstanding debts
Make arrangements to pay any outstanding debts as you wind your business down. This includes not only what you owe to lenders, but to various suppliers and vendors who serve your business. You could consider contacting your creditors to negotiate what you owe. Liquidating your business assets is also a good way to turn things like office equipment and customer lists into cash that can be used to repay debts. In extreme cases, you may consider filing for bankruptcy. But be careful before going down that road: the bankruptcy process alone can cost several hundred thousand dollars.
8. Distribute assets and close your financial accounts
If you have made final payments to your employees, paid state and federal taxes, and also settled your debts, then you can distribute remaining assets to yourself (and other partners or owners, if applicable). Once that is done, you should close your business bank account and cancel any business-related credit cards.
9. Keep records
It’s wise to keep all your important records, including tax and employment information, for three to seven years after shutting down your business. Some records, like your articles of incorporation, should be kept on file permanently. For a more detailed look at what to keep, check out this useful article.
As you can see, closing a business isn’t just a matter of closing the door and walking away. There are a lot of administrative tasks to take care of, and there’s plenty of potential to miss important details. That’s why we recommend partnering with a lawyer and a CPA (at the very least), plus any other professionals who can help guide you through the process.
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