Closing down a business is a big decision. It’s critical to take the right steps involved in the process. The reasons may be associated with poor management, poor marketing, anemic sales productivity, poor cash flow, inadequate investment capital, imprudent cutbacks, poor supply and delivery chains, and bankruptcy caused by rapid expansion.
If you’re closing because you lack the necessary working capital, consider applying to a reputable business funding provider like First American Merchant to get low-cost and reliable business loans to improve your situation. Firstamericanmerchant.com is also a respectable processor that offers exceptional payment processing services, including a bad credit merchant account, to merchants of any type and size.
However, if you’ve decided to close, just admit the fact and follow these tips:
- Vote “Yes” to Close the Business
If your business is a partnership, limited liability company (LLC) or a corporation, all the stakeholders must vote to dissolve the business entity according to the articles of organization.
- File the Certificate of Dissolution with the State
When shareholders or members have already voted for the dissolution, you must file paperwork with the state in which the business was incorporated.
- File Federal, State, and Local Tax Forms
Your tax obligations don’t immediately cease. Business closing must be formalized with the IRS as well as your state and local taxing agencies.
- Inform Your Creditors
You must inform all of your company’s creditors by mail that your business is closing. Your state may allow for claims from creditors that are unknown to the company at the time of dissolution.
- Settle Your Creditors’ Claims
Your company can accept or reject your creditor claims. Accepted claims must be paid or satisfactory arrangements made with creditors for repayment.
- Distribute the Remaining Assets
After claims are paid, remaining assets may be distributed to company owners in proportion to the share of ownership. Distributions must be reported to the IRS.
- Build an Exit Strategy
An exit strategy can help you mitigate your future risk and get as much money as possible back out of the business.
- Decide on the Time to Close
This is a personal decision, however, you can ask yourself some common questions like “Is there still a market for your products/services?” “Is your business still fun?” “Have you failed to make a profit after 5 years?” to make a better decision.
- Inform Your Employees
All employees must be notified. According to Federal law and the Worker Adjustment and Retraining Notification (WARN) Act, employers with over 99 employees must notify their employees in writing that the business is closing. Employees must receive the notice at least 60 days before the closing date. Employees must be issued final paychecks by their last day of work or due to your state laws.
- Inform Your Customers
All of your clients must be notified that your business is closing. They should know the last date to place any final orders. You can also give your customers a list of other vendors who can offer similar goods/services.
- Liquidate Your Assets
Turn to a professional auctioneer and hold a public auction. Pay a business broker a fee to sell off your assets. File bankruptcy so that the bankruptcy trustee can sell your assets and pay off your creditors with the proceeds. Assign your assets and debts to a company specializing in liquidating businesses.
- Resolve Financial Obligations
All financial accounts owned by your business must be settled and paid. Make sure any tax obligations are settled so to avoid further fines or interest penalties.
- Legally Dissolve the Business Entity
If you own a general partnership or sole proprietorship, you can avoid taking any legal actions to dissolve it. However, it’s a good idea to let the government and creditors know that you’re closing. Also, all unnecessary licenses, permits, and all business names registered with the local government must be canceled. Keep tax and employment records for at min. 5 years after your business is closed.
Closing down a business requires a certain process to follow. This process is just as important as the steps required to start a business.