In today’s volatile business climate only 66 percent of new businesses survive their first two years according to the Bureau of Labor Statistics. Only 44 percent are still in existence after four. Closing a business is traumatic for owners whether the organization is a sole proprietorship or a large corporation. The first thing you should do is develop a checklist. Here are some suggestions.
- Examine your articles of incorporation or partnership. If you’re a sole proprietor, you needn’t worry about this, since you probably don’t have any legally binding closing instructions unless you incorporated yourself. Be sure to add any specific tasks your business articles require to your checklist.
- File dissolution papers with the state if you filed articles of incorporation or partnership. Once you file these papers, you legally inform creditors that the business cannot incur any further business debt or taxes. In organizations with multiple owners, this prevents one of the owners from incurring a debt in the name of the company that the rest will be obligated to pay. It also prevents the state from taxing you further or billing you for new licensing fees. For a formal partnership or corporation you’ll need to officially vote to terminate the business and draw up and sign the dissolution papers. The process of filing a Certificate of Dissolution is different in each state; so familiarize yourself with the local requirements before attempting to file. You may have to pay all your outstanding taxes first before you’re allowed to file.
- Cancel any state or local permits or licenses including assumed name or DBA filings, seller’s permits or regulatory licenses. This may involve physically returning the license in the case of official displayed certificates or licenses to operate.
- Start collecting outstanding debts, loans or advances to individuals and employees and accounts receivable. It’s a good idea not to mention you are closing to your customers just yet, as it becomes much harder to collect if those who owe you money simply wait till your gone.
- Notify employees and plan so that you have enough money to pay everyone what you owe them within the time required by your state. Some states require you to also pay accrued vacation days as well. Create a layoff schedule that allows you to meet obligations while letting staff go when their jobs are done. If you have 50 employees or more, consult the Department of Labor. You may be obligated to issue a 60-day Federal WARN notice to all employees.
- If you are leasing facilities, be sure and provide your landlords the prior notice that is required in your lease – usually 30 days.
- Notify your insurance agent to cancel all your policies as of the actual end of all business activities. Remember to continue liability policies for as long as you are still closing up shop, even if all the customers and employees are gone except for yourself.
- It’s now time to notify your customers that you’re closing. Make sure you fulfill any remaining contractual obligations to customers, if at all possible.
- Conduct a going-out-of-business sale or an inventory disposal sale to clear out the shop and convert your hard assets to cash. Be sure and collect any sales tax that may be due and submit your final sales tax forms and payments after your closing date. Keep records as you may be required to file an asset disposal report.
- Notify utility providers to shut off your service. Cancel credit cards and pay any outstanding business debts. If you’ve had to file bankruptcy, be careful to abide by the terms of the bankruptcy agreement. Be sure and get letters from all creditors stating your debts are cleared.
- Check to see if your state or county has any “bulk sales laws”. These may require you to notify creditors before closing your business or to publish a notice in the paper a specific number of days before you close your doors. Corporations and LLCs are required to inform creditors of the closing, where to submit claims against the company’s assets and deadlines to submit claims - often 120 days from the date of the notice (not the closing).
- File all required IRS forms including Form 940 and 941. File your final income tax return. If you sold your assets, you’ll need to file Form 4797. If most of your assets went to a single buyer you’ll also file Form 8594. Submit your final payroll tax forms and issue your employee's final W-2 forms and any state withholding or wage reporting forms. If the business is a partnership, you’ll have to file a Form 1065 within three months of closing. The IRS business closing checklist can be found at: http://www.irs.gov/businesses/small/article/0,,id=98703,00.html.
- Close your business bank account, grab your briefcase and lock the door behind you on the way out. Be sure and leave contact information with colleagues, business contacts, employees and associates. If you’re going to be job-hunting, the more people who know, the better.
Photo courtesy of Kevin Dooley via Flickr