How to close a small business?
Closing a business is a critical and logical decision affecting your mental state. A small business is more than a means to make money. For many entrepreneurs, it’s a way of life and a way to follow their passion.
However, we live in a realistic world, so we can’t deny failures. It’s the critical process where you can let your emotions get the best of you. That’s why it’s important to see the entire procedure logically to find the best course of action.
In this article, I have discussed how to close a small business step by step. Keep reading.
Make Up Your Mind
Selling a business is a strong and logical decision. So, the first step in making this right decision is putting aside your emotions. Then, you have to take a good, honest, and close look at the state of the business. Remember to keep an objective approach to evaluate whether it’s plausible to carry out the business or if you should stop.
Yes, the first step toward closing your small business is acknowledging it’s not working. Here are a few signs that should prompt you to make this emotionally hard decision –
- Are you using your credit card to cover business expenses?
- Do you have personal health problems?
- Another red flag includes loving your products more than the customer’s.
- Are your key employees leaving?
In addition, if you’re not enjoying running the business you started out of passion, it’s probably time to close it.
Prepare for a Strategic Shut Down
You can’t just shut down the storefront and declare that the business is closed. First, you make up your mind and then think of the different stages you must go through to close down the business.
A few examples would include – do you know how to liquidate the business assets? Do you have creditors to repay? How are you going to close the customer accounts? What’s the procedure for laying off the employees?
Now, you can’t do all that by yourself. It’s wise to seek professional help in this phase as well. You have to involve lawyers, business experts, accountants, and brokers to successfully close down the business doors.
The best way to get clarity on the legal hurdles of closing down your small business would be through the SBA website itself. You’ll find all the steps necessary for filing a dissolution document canceling your license, permits, and business names. In addition, there are also instructions available outlining how you’ll comply with the labor and employment laws.
In addition, the IRS website helps with the tax-related procedures for closing a small business. They also provide links to the forms you’ll have to file to formally close your business.
Get other Decision Makers to Agree
Closing a business isn’t always a founder’s decision unless the founder is the only LLC owner. But, if you have a decision-making committee, then you’ll need approval from all the board members to shut down.
If you were running the business in partnership, then you’ll also need your partners’ agreement before you file for the business closure procedure. Remember, you can’t take the business on your own if there are co-owners of the business, and you’ll need their written agreement to start the closure process.
Announce it to the Staff
Before the news leaks, the employer should come clean and tell the employees. As soon as you and the other decision-makers agree, it’s best to discuss it with the employees.
If you were employing a massive number of people, you’d have to consider mass layoffs. Even so, don’t forget to comply with the labor laws and employment policies. You must complete payment to your employees before a mass layoff. Also, for a mass layoff, it’s best to let your employees know 60 days beforehand.
Collect on Outstanding Accounts
Here’s another duty you must carry out before you announce a business shutdown: collect all your outstanding payments. You’ll have lots of taxes to pay and legal fees for closing the business. In addition, there’ll be a massive number of employees to pay for before the layoff. So, you’ll need the money at hand before you announce a business shutdown.
So, before knowing how to close a small business, work on your collection strategy. Work aggressively to collect all the outstanding payments from different parties. A good strategy would be to provide a discount for immediate payments. You may also call the account manager directly.
Give Red Alerts to Your Customers
How to close a small business? The process goes like this: first, you make up your mind, then you discuss with your partners or other decision-makers, collect your outstanding payments, and prepare for a shutdown. While at it, you also have to announce the news to your employees.
But does that mean the customers are out of the picture? Absolutely not. You must also announce the news of a possible closing down to the customers. Give them ample time to close their accounts if you are selling subscription-based services or products. This should also provide them with the time to make new arrangements.
Prepare for Document Dissolution
Now, regarding the legal hurdles, you’ll have plenty of documents for dissolution if you were a business registered as an LLC. Your business might have continued taxes or other business debts.
There are different rules for this based on which state you are running your business in. In some states, business owners may have to fulfill their creditors’ debts first before document dissolution. However, it might be the opposite in other states as well. It’s best to stay on top of the legal rules of your state for document dissolution. Again, the rules may also vary based on business structures.
If you are running your business as a sole proprietor, you won’t have to file anything to the state.
Dissolve your Tax Requirements
Again, this step depends on the type of business you are running. Here are the tax requirements you must take care of –
- You have to submit your final income, sales tax, and employee tax returns to the federal and state governments.
- Next, you must cancel the EIN ( employee identification number).
- Report your business asset sales.
Cancel Business Licenses & Permits
Does your business have any permit, license, or registration provided by other agencies? In that case, you’ll have to cancel those licenses or registrations. Again, you’ll have to follow the different phases and processes that issuers have for this.
This is very important to maintain. Otherwise, your reputation can be tarnished if someone from your business uses those licenses after closing the business.
Pay Outstanding Debts
How to close a small business? You start by paying off all your outstanding debts. Just like collecting all the outstanding debts, you must also be mindful of paying off all your business debts before shutting it down forever. This could include paying off your lenders, vendors, suppliers, or your creditors.
Aside from collecting your outstanding payments, you can solve this by liquidating your business assets.
Declaring Bankruptcy
When your business has suffered enough losses to not be able to pay off debts, the only way might be to announce bankruptcy. This is an extreme condition for a business owner who has to announce that the business is bankrupt during a shutdown. However, there are legal steps for announcing bankruptcy. You’ll find the details on the IRS website.
Asset Distributions
You come to this state when you are done paying off your employees, state and federal taxes, and other liabilities; you are ready to distribute the remaining assets. In this case, you’ll have to follow the company structure and distribute the asset as per the company’s ownership stake.
When finalized, you are ready to close your business account and cancel the credit cards related to the business.
Maintain Record
For a successful and hurdle-free business closure, it’s important to keep all the records related to the shutdown. This includes keeping employment information and tax information. You should also keep records of the articles of incorporation. Maintain all the files you have related to the business safe.
Time to Switch on Your Emotions
We started the process by keeping our emotions aside because they can get in the way of finishing up the strategic paperwork. It takes a lot of effort to shut down the business you worked hard to build. But now that you are done completing the entire process, you are free to exit the technicalities and embrace your grief.
Give yourself time to mourn, accept, and heal to start over fresh again. Once you have moved on, you will be ready to start off from scratch again.
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