Closing a business is part of the process of entrepreneurship. You may decide to close the business because you want to pursue other interests. Or you have found a buyer willing to pay a good price for the business. Or maybe you decided to close the business because it has failed to generate the income it needs and closing it is the only viable option to stop the steady loss of funds.
There are a number of reasons why you will close the business. But whatever the reason, there are a number of things you need to do before you can wrap things up.
The IRS recommends the following checklist of things to do when closing a business :
- Make final federal tax deposits
- File final quarterly or annual employment tax form.
- Issue final wage and withholding information to employees
- Report information from W-2s issued.
- File final tip income and allocated tips information return.
- Report capital gains or losses.
- Report partner’s/shareholder’s shares.
- File final employee pension/benefit plan.
- Issue payment information to sub-contractors.
- Report information from 1099s issued.
- Report corporate dissolution or liquidation.
- Consider allowing S corporation election to terminate.
- Report business asset sales.
- Report the sale or exchange of property used in your trade or business.
On a more general note, the Small Business Administration advises that you consider the following steps when planning to exit the business:
- Reach agreement and obtain authorization from owners to dissolve your business entity.
- Designate a leader & organize a team.
- Engage professionals & consultants as team members.
- Prepare a list of assets and perform a physical inventory
- Develop a schedule for implementation
- Release announcements & notices
- Implement the plan
- Conclude or transfer contract obligations.
- Close operations.
- Dispose of and transfer assets.
- Prepare final financial statements & tax returns.
- File articles of dissolution.
- Prepare and issue special filings, notices, informational returns, and taxes.
- Receive tax clearance notice.
- Close bank account.
- Store business records.
Nolo’s book “Save Your Small Business: 10 Crucial Strategies to Survive Hard Times or Close Down and Move On” gives almost the same steps, with a few differences
- Create a closing team
- Look at your contractual obligations
- Deal with your landlord
- Collect bills and sell off inventory
- Notify and pay your employees
- Liquidate all business assets in an orderly fashion
- Notify customers and creditors
- Prioritize your debts and pay them to the extent possible
- Pay your taxes and file final tax returns
- If your business is an LLC, corporation or partnership, dissolve your legal entity
- Cancel permits, licenses and fictitious business names
- After debts are paid, distribute any assets remaining to yourself and other owners
Remember, though that, the goal when closing a business is to maximize the value of your business before converting it to cash.