Everyone talks about starting a business, business plans, business strategies, and more. You will hardly see anyone discussing closing a business and the process following it. Just deciding to close the business one fine day is not enough. You need to go through some steps to make a clear exit.
There are ten simple steps to close your business and walk away from it once and for all. They are listed below:
Planning the closure in time
Closing a business and walking away is not easy. Like a proper business strategy is necessary to establish a business, you must have an exit plan also. If you own an LLC or a partnership company, you need to discuss the strategy with your partners. While in the case of a corporation, the discussion needs to happen with the board of directors. You can discuss the decision with your lawyers, bankers, stakeholders, tax professionals, accountants, and others directly associated with the company.
Planning the closure in time will help you stay prepared with the paperwork and other legalities. Make sure that you discuss with all stakeholders before you take the final call.
Inform the employees in advance
Let all the employees under your company’s payroll know before taking your decision to close the business. They must know in advance to ensure that they make their arrangements in time. It is necessary to make sure that the pending tasks get completed in time. You have to collect the company properties such as laptops, phones, and even cars from them before you close your business.
If they are not told in advance, selling off your assets might also be hampered. You have to issue the last paychecks for your employees too. Some states have specific timelines for issuing the final payments for the employees before company closure.
If there are receivables from third parties, you must have a collection strategy to close all accounts in due time. Also, if payments are pending to stakeholders, it has to be made before the closure. Collecting receivables might not be as simple once the business is officially closed, as many business owners will be unwilling to pay your dues or delay it. Furthermore, the accounting practices might also bar them from paying you as an individual rather than your business.
Some additional efforts are required to receive the payments before closure. For this, you can request and complete the collection before announcing the closure. If you feel that there is a chance that you might not receive the payments, offer discounts to the payers. It is a great strategy to ensure that you receive a part of your due, if not the whole amount. Do not wait for collection responses to collection letters. Talk to them for a faster response.
Sell the assets
Selling off the company assets is an essential step to close a business. The sale of the excess inventory before closure might help you get some additional cash. To make the most out of it, you can sell your excess inventory at a discounted price. In the case of a large number of products, discuss with a liquidator. Assets might take a while to get sold, even at a discounted rate, so start early with the process.
File the dissolution
Formally dissolving a business is necessary as you might be otherwise exposed to legal liability. Firstly, you need to have a formal discussion with all the business owners. It might be as easy in the case of an LLC. However, the dissolution process for a corporation is slightly more complicated. There are many sections in a resolution of dissolution. These sections are:
- The name of the corporation and the state in which it is functional.
- The liquidation strategy in detail.
- The shareholders need to approve the dissolution and authorize it.
- The corporate officers take the actions necessary for the dissolution process.
Dissolution is a long process, and it takes quite some time. You must start the process well in advance to complete it well before the closure. Some states permit filing the paperwork online. Understand the requirements of the state where you are running the business to move ahead with the process.
Complete all paperwork
There will be much paperwork to complete the closure process legally. Talk to your lawyers when you decide the closure. Discuss with them the necessary steps of action in case of the company closure. They will tell you the way forward with the legal paperwork. It becomes easier to file if you had kept the papers in order when you started the business.
There are business accounts to be closed, along with business permits, registrations, and licenses. Talk to your accountants and tax professionals before you discontinue your bank accounts. It is to ensure that the company has collected all receivables and the stakeholders paid off. You can also stop renting and sell off any utilities. Credit cards are to be closed as well.
Complete all the work that you have begun
In case your company or a group of employees on behalf of a company have started a project. Make sure that the work is complete before the closure. You can issue a press release or publish your statement in a local paper, depending on the size of your business. Publishing the closure statement in the local papers is a rule in some states. Informing customers about the closure is also necessary.
If there is a work in progress, you will either complete it or refund the customers. The contracts with the clients and customers specify the cancellation policy and the way forward if the work is incomplete. In case the reason for you to close the business in the first place is due to dipping funds, and you cannot pay the customers, talk to them directly to explain your condition. You must discuss the process with your attorney before the closure.
Clear outstanding debts and inform creditors
Clear all outstanding debts before the business closure. Manage your bank loans in the right way. Understand that if you inform your bank about the business closure, they will immediately deduct the remaining amount from your business account. Let unsecured creditors know in such a way that you receive the inventory till the business closure. If you run the business as an individual, you can send closure letters to your creditors, requesting them for the final bill. If an LLC or a corporation, you can follow the process as your state’s laws permit.
File your taxes and complete payroll forms
Clear all dues and filing taxes before the company closure. Business taxes should be correctly filled. Issue the final paychecks for the employees. If you fall short of money to pay, you can submit an offer of Compromise with the IRS to reduce your owed amount. If you have filed bankruptcy, you cannot file an Offer of Compromise. You can apply for a collection information statement to avail the installment plan. File your tax returns. Make sure to file all taxes and returns within the deadlines to stay out of trouble. Issue W-2s and 1099-MISC forms for employees and contractors, respectively, and report them to the IRS for the process completion.
Distribute remaining funds among owners
Do not keep all the cash and funds with you. As your debts, taxes, paychecks of employees, loans cleared, distribute the remaining funds. All owners should receive a part of the funds as specified in their contract. If you are an individual running the business, you need not worry about this. In case it is an LLC or a corporation, extra care is taken to assure that all the owners are happy and satisfied with your decision. Talk to them individually to understand their temperament. No one should be displeased with your decision of company closure as it might cause issues in the long run. However, make sure that all your debts are clear before distributing the remaining funds to the owners.
These are the ten basic steps of closing a business. In the present day scenario, where many companies are closing down for various reasons, one must take an organized approach to the company closure. You have to close the business legally to stay away from trouble from stakeholders, creditors, employees, partners, or directors. Know the laws of your state and abide by them in terms of company closure.
The closure process is long, but if you get it correct the first time, you will not have to worry about it later. Have all the paperwork arranged and leave it for future references. Some tend to believe that it is comparatively easier to have a business plan ready and start a business than to make a clean exit from one. Understand the requirements of closing a company before you decide on it. Discussing with people and stakeholders will help you get better insights into the decision. Plan your exit to make a clean exit.