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Closing Down: How to Efficiently Wind Up Your Business

Closing down your business can take some time, but it's better to go slowly than to rush it and make mistakes.

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It's not easy to decide whether to close down your business. Sometimes you might feel that you have to do it because you're not making enough money. Or maybe it's just not working out, and you're ready to move on to something new. Once you've decided that closing your business is the right thing to do, you have to consider all of the necessary steps for getting it right. If you're simply a solopreneur, you could just stop working. But if you have a small business, winding up your business is a little more involved. This guide will help you to take care of some of the most important tasks.

Get All the Legal Stuff Right

When you're getting ready to close your business, you need to make sure that you do it legally. You don't want to discover that your business is regarded as still running and that you are still expected to file your taxes after you have closed. It's smart to work with a lawyer when you're taking care of everything to make sure that you get it all right. Whether you use a legal service or not, do your research to find out what steps you should be taking to check off all the legal boxes.

Create a Timeline

When you create a timeline for closing your business, you can start to get organized and know what's going to happen and when. You need to work out how you're going to take care of everything and tie up loose ends so that you can square everything away. Think about the steps that you need to take, from paying creditors and liquidating assets to closing customer accounts and laying off staff. There can be a lot to do, which is why it's helpful to get assistance from professionals, such as accountants and brokers, who can offer you advice and guide you through the process.

To make sure you know the essentials steps that you should be taking, look at business resources from organizations like the Small Business Administration and the IRS. These sources can give you official information on what you need to do to close your business.

Communicate with Decision Makers

Sole proprietors or LLC owners can close their business without consulting others. But if you have partners or investors, you need them to be involved in the process of closing the business. Everyone will need to discuss whether it's the right decision and then talk about the process and everyone's responsibilities. You might already have an outlined winding-up process that has been written into agreements between you. It's important to make sure that this is followed and that everything is carried out as it should be. Having to work with others to close the business can complicate things, but it can also mean that you have help.

Pay Outstanding Bills or Debts

If you have any bills or debts to pay, taking care of these is important when you're closing your business. An exception might be if you have declared bankruptcy for your business and your debt situation is already taken care of. Hopefully, you already have the available funds to pay off anything that you owe. However, if you need to, there are a few different ways you can raise the money that you need. If you liquidate your assets, you might be able to fund some of your bills and debts. There might also be outstanding payments from customers to collect.

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Sell or Donate Equipment

Liquidating your assets might help to pay for any costs associated with closing your business. There are various things that you might sell, including furniture and equipment. Whether you want to sell desks and chairs, inventory, or sell server memory, look for the most appropriate ways to sell everything. Specialist services that will buy business equipment in bulk can be useful. You could also auction off your assets or have a closing down sale that allows other businesses or members of the public to buy things from you before you are closed for good. Another option is to donate your assets instead if you don't feel like you need the money.

Collect Outstanding Payments

Another way to raise funds when closing your business is to make sure that you collect on any outstanding payments. It can be time-consuming to chase up invoices that haven't been paid, but it's also worth it if you need to pay for various fees relating to the closing of your business. Once you've closed down, getting that money will be tough. Putting together a strategy for chasing payments and getting people to pay, whether through offering incentives or getting in touch with account managers, can help you to get things moving. Make sure you do this before publicly announcing that the business is going to close.

Lay Off Staff

The most difficult part of closing your business might be letting your staff go. You don't want to have to tell them that they will no longer have a job. Unfortunately, it's reality if you need to close your business. Your employees should know as soon as possible so that they don't feel that they have been kept in the dark. You should allow them the courtesy of having plenty of time to look for a new job. Assure them that you will provide references and make the transition easier for them. Be sure to follow any relevant labor laws in relation to how much notice you give them and other issues.

Let Your Customers Know

You don't want to rush telling your customers about the end of your business, but you do need to tell them at some point. You will especially need to let them know if you will be closing customer accounts or stopping an ongoing service. They will want time to find an alternative business that they can use, so don't leave it too late to tell them. Be as honest as you can about why you are closing the business, but be reassuring when you tell them too. Even if there has been chaos behind the scenes, you don't have to let your customers know.

File the Right Documents

LLCs and corporations need to file for dissolution. This needs to be done in the state where you created your business to make sure that you will no longer be required to pay taxes. Before you can file for dissolution, you might need to settle debts with creditors. However, depending on the state, you might be required to do this the other way around. The process varies from state to state, so be sure to check what you need to do before you make any moves.

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Remember Tax Requirements

You'll need to take care of all of your responsibilities in regards to tax. You have to make sure that you submit all of the information that you're required to and cancel your Employer Identification Number (EIN). Some of the steps that you might need to take include submitting your final tax returns for both state and federal taxes, as well as reporting any business assets that you have sold.

Cancel Licenses, Permits, Registrations, Etc.

If you have any official licenses or permits, or you're registered with any regulatory boards, you will need to cancel these when closing your business. Letting these organizations know is important because it will stop others from using your name. How you go about canceling these things will depend on who you need to notify. Every agency can have a different process for doing this, so check their website or get in touch with them to find out what you need to do. Make sure you know how much notice you need to give.

Take a Look at Bankruptcy

If you haven't already considered it, take a look at your options for bankruptcy and decide if it might be the right choice for your business. Bankruptcy might be necessary if you have business debts that you can't deal with, but it's also a last resort. It could be more expensive to choose bankruptcy than to try and pay off your debts. There are options that you have to try and pay these costs so that you don't have to choose bankruptcy unless there are no other possibilities.

Keep Records from Your Business

Your business might be closed, but you could still need to provide information about it in the next few years. Don't get rid of records pertaining to your business and its closure just yet. Information such as employment and income records should be kept for at least a few years. There are also some documents and records that you will need to keep indefinitely. Most tax-related records need to be kept for three years, although some states might require records to be kept for longer. Check how long you need to keep everything before dissolving your business.

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