We recommend being gradual when closing down your business. ‘Wind it down’ so to speak. There may be many reasons as to why you want to wind down your business. Maybe you’ve exhausted all possibilities of making it profitable (or sellable), lack the capacity or just want to do something else with your life.
This article focuses on taking care of the legal and financial details, managing stakeholder relationships and turning whatever assets you have into cash. Usually, this process takes at least two to three months because it’s a multi-step process – one that’ll vary depending on your business structure and where you’re operating from.
As a business owner, once you make the decision to cease your business, a bespoke plan regarding how to wind down is crucial. From a legal point of view, failure to follow the correct process can mean continued liability for taxes or payments far into the future. From a financial point of view, you need to make as much cash as you can from your assets (think inventory, property and machinery).
Not to mention that on a personal level, you want to ensure that you’re giving good notice and maintaining good relationships with the people who have worked with and for you through the duration of the business’ venture.
Get your team together
A business lawyer, accountant and tax accountant will come in handy here.
When to tell stakeholders
Depending on your business, you could have a lot of different interested parties: suppliers, lenders, landlords, employees, customers and other businesses. Without a solid and coherent plan, these stakeholders may get very jumpy when you announce that you’re winding down. Banks could call in their loans, suppliers may accelerate credit terms and employees may quit – leaving you without key personnel. Depending on the type of business, a good, orderly wind-down could take a year.
Chase up any outstanding payments and debts due
It’s worth noting that just because you’re winding down, it doesn’t mean people don’t have to pay you.So, if you’re owed money from debtors, you’ll probably need to bring in a collection strategy before you let them know. On the flip side, if you owe money to lenders or to the bank, you need to make sure that you’re clear on what you owe and how you’re going to pay it back.
Have the other stakeholders and founders on board?
If you’re a sole proprietor (a business owned and run by just one person), the only person who needs to agree is you. But, if you’re a corporation, a partnership or a limited liability company (LLC), you’ll have procedures to follow as outlined in your organisational documents, and you’ll also have to follow your state’s requirements. Usually, all or the majority of a business’ owners need to officially agree to close the business – and it needs to be recorded.
Follow through with a dissolution process
Even though you’ll likely not file your documents – especially your final tax returns – until after completing the other steps in this guide, you need to find out what your state demands from you early on. These so-called ‘articles of dissolution’ basically set out the nitty-gritty details of the business. You can also take out insurance to protect against any claims made after the company has been dissolved.
Cancel any permits, licences and subscriptions
This is important because you don’t want another business or individual to come along and use, for instance, your seller’s permit and business name. That would make you responsible for financial penalties and taxes, even when your business is no longer officially operating.
Liquidate your assets
An important part of the winding-down process is turning any assets you have into cash – this is extremely useful for paying creditors, tax and employee salaries. This might involve selling your products at a discount, selling off machinery and equipment or an office clearance sale. Some companies specialise in this service.
Pay your outstanding taxes
An accountant may very well be necessary at this point.
Outline a way for people to contact you
Even once the business is wound down and officially closed, there still needs to be a clear way for stakeholders to get in touch with you. There might be other creditors that you’ve forgotten about or employees who need references. Remember, you don’t want to burn bridges. You’ve spent so long building this network and you’ll never know when certain contacts will come in handy in the near future.