Learn How to Close a Business
Understanding how to close a business is important for business owners seeking to sell their business, retire, or declare bankruptcy. While most of the steps to closing a business are the same in all three cases, bankruptcy and selling a business require a little more legal work. No matter what your reasons for closing your business, here are tips to help you navigate steps to closing a business
Common Reasons to Close
What are your reasons for closing a business? Some common reasons include declaring bankruptcy or retiring from the business. Another reason is that you simply wish to get out of the business, and you sell it to another person. No matter what your reasons, closing a business is bittersweet. Entrepreneurs begin with dreams, fueled by passion, and closing a business may feel like admitting failure. Be sure to give yourself time to grieve lost dreams if closure is due to bankruptcy.
Consult Your Professional Team
Your first step to closing your business is to talk to your lawyer and accountant. Both are likely to have experience in closing businesses for their clients and can walk you through the right steps with the federal and state governments as well as the IRS. If you're selling your business, your attorney should write or review the sales contract, too.
Sell Business Assets
If you're selling your business, the business' assets--the building, furniture, inventory, office supplies and customer list--are often included in the entire sale. In bankruptcy proceedings, assets are included in your bankruptcy filing and will be sold to pay creditors. If you are retiring, consider selling your assets. A mailing list or customer list is a valuable asset that can be sold too, so don't forget to consider items like this among tangible assets, like furniture, store fixtures and land.
File Final Tax and Wage Reports
The IRS requires that businesses closing down file extensive paperwork. This includes final quarterly or annual employment forms, final W-2 forms, and numerous reports. Luckily, they prove a checklist with links to each form. Check with your state tax office and your accountant to make sure that you have filed all the appropriate tax forms.
Shareholders and Pension Plans
Another important step is to file final employee or pension reports with the IRS. If you are shutting down retirement plans or transferring them, consult with your accountant and attorney on how best to handle this aspect of closing your business. The IRS also requires that you file final statements on business partner or shareholder assets.
There are other possible reports to file. Your attorney should guide you through them. They will vary according to the type of business you are closing, whether or not it is a publicly traded or privately owned business, whether you have shareholders or investors, and whether you are declaring bankruptcy, selling to someone, or simply shutting your doors.
Cancel Your EIN
Canceling your EIN, or Employment Identification Number, is an important final step. Like your social security number, the company's EIN identifies it with the federal and state government. There are forms on the IRS website to complete and mail in to cancel a corporate EIN.
Shut Down Accounts
Once you have your paperwork in order, pick a day and begin shutting down. You will need to cancel accounts with your vendors. Be sure to shut down recurring billing, such as website hosting, telephones, fax numbers, and more. Credit cards should also be canceled.
Thank Your Customers
One important last step is to thank your customers through a letter. Also let your customers or clients know who will be taking over your business, if you are selling it, and reassure them that the business will continue. If you are shutting your doors, it's also helpful to provide them with the contact information of someone else who can help them. You may also want to send thank you letters to vendors and others who have helped you along the way. Kindness always returns in some form or another, and you never know - you may open a new business someday!