Over the past week I have been dealing with the impending and then actual death of a family member. During this time our family has gone through the emotional turmoil of coming to terms first with the realization that our loved-one was not going to beat her cancer, then that she only had a few days left, and finally with her passing. After that came the immediate demands of final arrangements and the memorial service. And now we are embroiled in all the paperwork, legal requirements, and logistics of closing down a life. (Honestly—it should be easier!)
As we work through our family situation, I am constantly reminded of how similar it is to closing down a beloved, but ultimately failed, small business. While there is plenty of advice floating around about how to bounce back from a business failure, and how to learn from it (for example, check out the recent Tip post In Memoriam F.S.B. (The Way of the Small Business)), that is the end of the process. It is just as important to be prepared to handle everything that leads up to it.
It’s Time to Shut Down Your Business: What Do You Do?
Step 1: Making the Toughest Decision
The first step in this process is putting aside emotion for just long enough to take a good, hard, honest, look at the state of your business. Once you do that, you can make the toughest type of business decision there is: do you do whatever you can to keep the business going, or do you shut it down?
A recent post from Daily Worth, 6 Signs It’s Time to Close Your Business, highlights key indications that it is time to call it quits. Red flags include using personal credit cards to cover expenses because you are falling short of revenue projections; developing personal health problems; loving your product more than your customers do; and having your key employees leave. A post from American Express OpenForum makes another key observation: If you’re no longer having fun it is probably time to quit. After all, isn’t having fun and following a passion the reason you started the business in the first place?
Step 2: An Orderly and Strategic Shut Down
Once you’ve made the decision to close the business, your work is just beginning. If you run a sole proprietorship, or if you are the only LLC owner, you can make the decision and wind it down yourself. If you have partners or investors, it will need to be a group process.
You’ll need to figure out how to liquidate assets, pay creditors, close customer accounts, lay-off staff, and a million other little details. The process can be overwhelming, which is why it is a good idea to seek professional assistance from lawyers, accountants, brokers, and other business specialists.
A good place to start figuring out what you’ll need is the Getting Out section of the Small Business Administration (SBA) website. The Steps to Closing a Business article walks you through key steps including how to file dissolution documents, how to cancel registrations, permits, licenses, and business names, how to comply with employment and labor laws, how to resolve financial obligations, and how to keep all the appropriate records. Refer to Legal Resources for Exiting for links to helpful articles.
The IRS Closing a Business portal also provides resources that will help you meet all tax requirements, and ensure that you do not make mistakes that will end up costing you money in the future. The Closing-a-Business-Checklist provides links to 20 forms you may need. Even if you don’t want to handle these yourself, the checklist is a good place to look to help you know what to discuss with your lawyer and/or accountant. You may also want to watch the short Closing a Business video in the IRS video portal.
Hopefully you will be able to close the business without having to declare bankruptcy, but that is not always possible. If bankruptcy is your only viable option, then be sure to check out Declaring Bankruptcy on the IRS website. However, don’t make that decision too hastily. The High Cost of Saving a Failing Business, from the Wall Street Journal, provides examples of costly small business bankruptcies that cost anywhere from $100,000 to $600,000. So before you choose bankruptcy, take a close look at every possible business asset you have. Just about everything from customer lists, to office equipment, website domains, buildings, social media accounts, and trademarks will have some value. The SBA Liquidating Assets page provides advice on how to identify and sell these assets.
Step 3: Take Time to Mourn
You will likely be so wrapped up in the many details of winding down your business that the loss won’t really sink in until it is all done and you wake up one morning with nothing left to do but reflect upon your failure.
When this happens, most experts predict that you will go through the same 5 stages of mourning and grief that people universally experience when a loved-one dies: Denial and Isolation, Anger, Bargaining, Depression, and Acceptance. The five stages of grief for a failed social entrepreneur directly relates these stages to a small business failure, with a slight variation to: Denial, Blame, Self-Flagellation, learning, and picking yourself up to start again.
Typically these stages of grief take time to work-through. But, The 24-Hour Trick for Getting Over Failure from inc.com suggest that if you take one day to intently focus on your failure, including taking the time to cry, scream, pout, and otherwise wallow in grief and self-pity, it will help you quickly move through the mourning process to acceptance.
Step 4: Bounce Back and Move On
Once you’ve fully recovered from your small business failure, you’re ready to start again. This can mean anything from another entrepreneurial venture, to joining an existing start-up, to getting a traditional job with a traditional company.
The restart can be easier said than done, but if you learn from your failure you will likely end up in a better place than you were when you started the business that failed. The Harvard Business Review article, Strategies for Learning from Failure, examines how companies learn from failure and identifies effective and ineffective approaches. It discusses “the right way to think about failure” that will put you back on the track for future success.
Hopefully your small business will be wildly successful and you will never have to face the prospect of its demise, or the complications of winding it down. But, if you do find yourself in that situation it is always helpful to know that you are not the first, that you are not alone, and that you can bounce back again. For inspiration read 5 Spectacular Examples of Turning Failure Into Success.
Visit PaySimple.com to learn more or start your free trial today: