Closing a business is rarely a happy moment, but you don’t have the luxury of shutting the doors and forgetting all about it.
50% of small businesses won’t make it past five years of operation. But what few people talk about is the work that goes into properly closing a business.
Below, we’re giving a quick rundown on the 7 actions you must take when you close a business.
A Quick Run Down on How to Close a Business: 7 Actions You Must Take
1. Consult with Employees
The closure of your business represents a major upheaval in the lives of your employees. Do the decent thing and notify them early. While you may have to limp through your final months on a skeleton crew, you’ll give your workers a chance to find positions elsewhere.
2. Resolve Outstanding Business
Your business is still beholden to any contracts it may have signed, and any work you may have taken on.
To the best of your ability, resolve all outstanding business, such as ongoing projects. You should also stop taking on new projects, as your ability to deliver them will only decrease.
3. Inform Customers
You may have customers who have shopped with you for years. Your last customer service act should be to inform them of the sad news.
This will give them the chance to engage with you one last time and find alternatives. It’ll also help to build awareness for when you close out your inventory.
4. Sell Inventory
Depending on your business, you may still have many goods to your name. If so, you must move it on by finding buyers.
If the goods you have are saleable stock, you can hold a fire sale to encourage your customers to purchase them. If it’s something more specialized, like materials, then you must sell them to a wholesaler or another company in your line of business.
5. Resolve Outstanding Debts
Shutting the doors won’t absolve all debts in your name, so it’s essential you pay off any existing debts you’re still accountable for.
Reach out to your creditors at the earliest opportunity to notify them of your circumstances. This is also the time to request final settlement figures.
6. File Your Tax Return
How you file your final tax return will depend on your business. Sole proprietors can file their taxes as usual, without declaring its finality. The rules are more complicated for partnerships, LLCs, and organizations, so you must fulfill the respective IRS requirements.
7. Tie Up Loose Ends
A business closure results in a wide variety of loose ends besides the ones we’ve outlined above. Work with your business attorney to ensure you’ve checked all the legal boxes before you wrap up.
You must distribute any remaining business funds if you’re not a sole proprietor. You also must close any utilities or services you have in place.
Finally, you can close relevant bank accounts and cancel your business license.
Close a Business the Right Way
When you close a business, it’s vital you go about it the right way. Failing to do so can leave you open to further stress and even legal turmoil. With this checklist, you’ve covered the essentials.
If you’re a business owner looking for legal help with closing a business, you can get in touch with us.