Closing a business is never an easy decision, but the speed in which it can occur depends on your tactics. If you are a sole proprietor, you could close up shop without consulting any other parties. Thatâ€™s not necessarily the wisest move, especially if you value your reputation both personally and professionally.Â Take the time to devise a closure plan that takes all aspects of the business into account.
Business type will dictate how quickly you can move closure along. If you have a limited liability corporation (LLC) or partnership, you will need to review your articles of incorporation to determine how dissolution must be handled, partners must be consulted and even potential buy out plans must be considered. The buy-out is when your partner(s) may choose to purchase your portion of the company allowing you to walk away while they maintain ownership of the brand and all of its assets. Youâ€™ll need to put the final dissolution agreement into writing as well.
The more complicated your business, the more likely you will need to enlist outside counsel.Â Even if you are a sole proprietor, if you have employees, a large book of business/clients, or vendors youâ€™ll want to work out a solid plan for communicating the businessâ€™ closure. This will help ensure that all concerned parties are notified and involved in conversations about how and when the business will halt operations. For employees, there are local, state and federal employment laws to be reviewed and abided.
Collect outstanding debts â€“ before you tell anyone youâ€™re closing the business make every effort to collect on accounts receivables. To spur payments along, consider offering a discount for prompt payments, but remember, you donâ€™t want to tip your hat that the business is closing, so try not to put new early payment deep discounts in the forefront or your clients and vendors will catch on quickly.
Sell off the inventory. Youâ€™ll want to sell as much of your inventory as possible. If you are a retailer with roots in your community, a going out of business sale may become a large event. Prepare for all aspects of the sale including possible large crowds and crowd control. You may even need to contact the local police department to manage traffic and crowds. If after all of the sales and final closing you still have inventory, you can consider several options:
Â·Â Â Â Â Â Â Â Internet auctions on sites like eBay or craigslist.com.
Â·Â Â Â Â Â Â Â Hire an auctioneer to sell off the remaining inventory
Â·Â Â Â Â Â Â Â Bring in a liquidator. This may be a last resort but can help you sell of the remaining stock for pennies on the dollar.
Notify your vendors. In some instances there will be contractual or legal requirements on how to notify your suppliers, vendors, and creditors of the businessâ€™ closure.Â Send a certified letter notifying them of the date of the closure and how you will handle any outstanding debts. Include information on the deadline for submitting claims and a statement that claims will be barred if not received by the deadline, a list of information that the creditor should send in order to file a claim and a mailing address.
File dissolution documents including a Certificate of Dissolution, certificate of cancellation or other such type of form. If your business is an LLC or corporation, you will need the partners or board to meet and vote on the dissolution including a written consent form which should be included in your corporate record. Corporations will also need to file IRS Form 966, Corporate Dissolution or Liquidation.
Cancel registrations, licenses, permits and business names. If your business has registered to do business in other states, youâ€™ll also need to file cancellation forms in each state.
Take care of your employees and comply with all local, state and federal labor laws. This will be a multi part process that should include:
Â·Â Â Â Â Â Â Â Issuing final paychecks
Â·Â Â Â Â Â Â Â Reimbursement of expenses â€“ including a process for employees to file expense reports after they have completed their last â€˜officialâ€™ day of work.
Â·Â Â Â Â Â Â Â Collecting any company property such as laptops, cell phones, credit cards or other assets.
Â·Â Â Â Â Â Â Â Continuation of benefits â€“ If your business has more than 20 employees and you offer group health insurance, youâ€™re legally required to provide information on continuation of health benefits in compliance with the Consolidated Omnibus Budget Reconciliation Act (COBRA).
Â·Â Â Â Â Â Â Â Deactivate all company passwords, door security codes and other electronic access to the business.
File your final IRS Form 940 and Form 941.Â Depending on your state, you may need to obtain a tax clearance, also called a consent to dissolution which provides your business a good standing with regard to taxes. You cannot receive a tax clearance unless all of your tax payments are current and paid in full.
There are many more steps to closing a business, but this brief list will help to point you and your business in the right direction. As with any major business decisions, it is always wise to seek guidance and advice from experts.
PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.
To find a trusted accountant in your area, visitÂ www.SmallBizAccountants.com.
Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.