As with all aspects of owning and running a business, closing one requires many steps to be taken. It is not simply closing a door and turning off the lights on the way out. If one were to simply walk out of a business it would leave a lot of vulnerabilities out in the open to lawsuits, smeared personal and business reputation and additional fees. Reasons for closing down a business can be numerous, especially in these volatile global market conditions. It does not necessarily mean bankruptcy, let’s get that out of the way. The term used is “dissolution”, you are dissolving a business as a legal entity. The regulations that you need to follow depend on the state or states your business is registered with. Here are some checkpoints to cross-out when closing your business.
Business Status review
Before making any drastic decision, know that it should be done on a solid backbone of carefully acquired data and research. In those lines, before closing down a business you need to evaluate the businesses’ financial strengths, debts and other obligations. Before closure, make sure there are no costs and expenses that you can cut down temporarily to make the business profitable and thus, viable. Check if you can reduce payroll costs, renegotiate various aspects of doing business like leases and supplier obligations, or downright changing vendors and reducing overhead. Reducing expenses will allow you to stay in business longer, maybe indefinitely. If not, it can make a company more solvable for selling purposes later.
In case of closing down a business, you need to inform your customers of this intent and deal with any ongoing transactions without committing to new ones. It is common practice for larger businesses to issue press releases in order to inform everybody efficiently. For smaller ones, a simple local paper published statement is fine. In these statements, there is a number of things you need to address in order to avoid lawsuits, unfulfilled contracts and dissatisfied customers. The first order of things is to fulfil all outstanding jobs. If that is not possible for whatever reason, they should all be refunded. And if that fails, the last course of action to take is to communicate with the clients to work out a payment plan.
For any outstanding contracts with customers, either fulfilment or early termination is possible. Some contacts may include beforehand a cancellation fee that needs to be paid if a project cannot be completed. These should definitely be paid to avoid any lawsuits and dissatisfied customers. Before deregistering a company with a member’s voluntary liquidation, make sure that these points are covered. If all else fails, you can contact the customer or client, explain your situation and ask for early cancellation of the contract.
Now is the time to sell any excess inventory. It is usually done through big, public sales with hefty discounts. Customers and employees can benefit from a closing-the-business sale with even greater, final discounts. Anything that remains, if that happens, can find it’s rightful place via online sites, like eBay, Amazon and such. For larger quantities of unwanted inventory, there are companies that are buying it off.
It may go without saying, but many people think it is too much of a hassle to hire professional help when closing down a business. Speaking with an accountant, lawyer and other trusted business advisors are essential before making any final decisions. The reason for that is that you need to make sure that all avenues for making a profit are exhausted and the damage of actually closing down a business is minimized. Only such professionals can open your eyes to other possibilities, maybe even turning a failing business around back to its feet. If closure is inevitable, a lawyer will prove to be an invaluable guide through the legal system. Payroll taxes, dissolution documents and other tax forms need to be pristine in order for everything to go smoothly.
After everything has been taken care off, both financially and legally, the remaining money can be distributed to the owners. Even then there are differences between types of companies on how that money is distributed. Sole proprietorship, partnerships, LLCs and corporations all behave differently when it comes to asset redistribution. These are simple and easy to figure out and act accordingly.
Finally, we are left with trivial things like cancelling business licences, bank accounts and other monthly services and utilities. A business closure does not necessarily mean the end, as other assets can be diverted to more profitable ends.