Steps To Closing A Business
If your days of running a business have come to a close, it’s crucial that you take the proper steps to close the business. Unfortunately, many business owners believe that merely ceasing operations is enough to dissolve the business, but this is not the case. Business owners should ensure they follow the proper steps when closing a business. Otherwise, they could accumulate taxes, debt, and fees without realizing this to be the case.
Recover Accounts Receivable
Before announcing that their company is closing, business owners should make all efforts to collect on any outstanding accounts receivable. Once the business owners declare that the business is closing, clients will be much less inclined to pay the money they owe the company. The cost of closing a business can be rather expensive, especially if there are outstanding debts or the company has a lot of employees. That’s why companies should make an effort to collect all the money they’re owed before they announce that they are closing.
Because this is a measure of last resort, business owners may need to get creative to get their customers to pay. They can consider offering discounts if the customer pays in full. So, for example, if a business is owed $10,000, they could say that they will provide a 10% discount if the customer pays in full now. In this case, it’s better for the business to collect $9,000 than to collect nothing at all.
Additionally, businesses seeking to collect outstanding accounts receivable may want to get more personal with their customers when seeking payments. Instead of sending an invoice, consider a more personal method such as calling the customer or visiting them in person. It’s much more challenging to be ignored this way.
Plan An Exit Strategy
Even if a business owner has decided that it is in their best interest to close a business, they should not decide on a whim. The business owner should seek advice from outside agents who can help assist them and provide legal information. For example, the federal government’s Small Business Administration offers a counseling tool to businesses who are looking to close. Additionally, business owners should consult with legal experts, including:
- Business Evaluation Professionals
- The IRS
Once the decision has been reached to close the business, owners must come up with a way to do so. If the business structure is a sole proprietorship, the business owner can close the business on their own. However, any other type of company structure will require co-owners to agree that it’s in the business’ best interest to close. Ideally, the process of reaching this agreement was outlined in the business’ articles of organization or the operating agreement if an LLC / bylaws for a corporation.
File Dissolution Documents
Once business owners have decided to close, and they’ve planned their exit strategy, they should move forward with filing dissolution documents. Business entities are required to file dissolution documents in every state in which they’ve conducted business. For example, an LLC must not only submit dissolution documents in the state in which they’re considered a domestic LLC, but in those states in which they’re considered a foreign LLC as well. The same applies to partnerships and corporations.
Cancel All Other Relevant Documents
After the company his filed dissolution documents, the business owners can move forward in canceling all other relevant paperwork. This can include licenses, permits, registrations, and business names. Business owners should remember that they may need to expand outside the Secretary of State’s office to cancel this paperwork, since some of these documents may be housed at the federal or municipal level. Properly canceling all relevant registrations can help protect a business owner’s finances and reputation in the future.
If the business has employees, business owners should also ensure that they adequately inform the employees that the company will be closing. It’s crucial that businesses comply with employment and labor laws when in the midst of closing. If business owners need assistance in doing so, they can reference the Worker Adjustment and Retraining Notification Act, published by the federal government. This not only helps ensure that businesses remain compliant with federal and state laws, but that employees receive proper pay after a company has closed.
Pay All Outstanding Debts
There’s nothing worse than closing a business, only for debt collectors to harass the business owner years later because they did not clear all debt from their books. Business owners should not only ensure they have enough capital to pay their employees properly, but they should also make sure that they can pay the final returns for income tax and sales tax. Additionally, business owners should move to resolve all debt with clients. If a business owner cannot pay a debt in full, they could perhaps negotiate a payment plan with the customer.
If a business does not have the financial means to pay their withstanding debts, they may need to consider taking a measure such as filing for bankruptcy. However, this is a serious matter that should not be taken lightly. Business owners should only consider this option after speaking to a trusted financial advisor or accountant.
Meet All IRS Regulations
In addition to meeting state requirements, there are also numerous requirements set forth by the IRS that business owners must meet when closing the business. For one, businesses are responsible for filing their final annual returns. They are required to submit this information for the year in which they go out of business.
Business owners must also make final federal tax deposits on their employee’s taxes. When submitting this information to the IRS, business owners should also include a statement of return indicating the name of the person who kept the payroll records and the address where these records are kept. The IRS recommends not disposing of financial records related to the business immediately after dissolution. Instead, companies should maintain their financial and payroll taxes for a couple of years after closing a business. After business owners have submitted this information to the IRS, they should be sure to cancel their Employer Identification Number.
Make Sure You Close Your Business Correctly
If you are closing a business, it’s crucial that you follow the steps necessary to do so. No matter if you are overwhelmed by the process or would merely like another set of eyes to confirm you’ve completed everything correctly, DoMyLLC is here for you. When working with us, you can take the risk out of closing a business.