Deciding to close a business that you have put your heart, soul, time and energy into can be a difficult decision. Even if your business is profitable, there may be reasons why you might elect to close doors. Here are some things to think about when making that decision and some things that you need to keep in mind if you do choose to close.
Things to Think About
- Profitability: Is the business profitable enough to provide the financial support that you need in both the short term and the long run? If not, what would it take to turn that around? Have you just been managing operations and not managing the financial health of your business? Is there room for you to redirect your energy to growing the business? If so, what is your timeline for increasing profits?
- Market: Has the market for your products or services changed? Have you kept up with the market? Is there still room for your business in the marketplace? Is there too much competition or has the market disappeared? Is there a way that you can redirect or reinvent your business to be more successful in the market? Is the market for your product or services changing in a direction that makes you want to exit?
- Self-Evaluation: Do you still enjoy your business? Do you still have the drive and energy to make your business successful? Does your business work well with your family life? Have you achieved your goals? Would you be happier or more successful doing something else? Are you ready to do something new? Are there opportunities for you to do something new? Thinking both long-term and short-term, how will you feel if you close your business?
- Parties & Responsibilities: Whom does your business support? You and your family? Your employees? Their families? What are the consequences of your business closing? What are your responsibilities to yourself and your financial welfare? Is your business a sole proprietorship, LLC, or corporation? What parties need to be involved in your decision about possibly closing?
- Alternatives: Are there alternatives to closing your business? Is there anyone in your family who would want to take over the business? Any employees who would want to take it over? What are the prospects for selling your business? Should you get a professional business valuation before making any decisions about closing or selling?
- Timing: What present issues are making you think about closing your business? Are these likely to change? What are the pros and cons of closing your business now? What are the ramifications of keeping it open, for example so that you can try to sell it? Are there tax implications for timing the closing of your business?
- Professional Advice: In deciding whether or when to close your business, you may need to get professional advice from your accountant, attorney and banker. It might also be beneficial to bring in a business appraiser. Do you know which professionals do you would consult?
After thinking through such questions, you may decide that closing your business is not the right option for you or not the right option for you now. If, however, you decide that it is best for you to close the business, there are some steps for you to take to minimize liabilities and to do so professionally and efficiently.
Steps to Take
- Decision-Making: If you are a sole proprietor, you can decide to close our business by yourself; but if you have an LLC or a corporation, the decision to close the business will need to be made in accordance with its articles of incorporation and will need to be documented in writing.
- Consult Experts: If you have decided to close your business, confer with your attorney and accountant about tax implications, timelines, liabilities and employment law compliance issues.
- Settle Accounts: Settle accounts payable and receivable or make arrangements for their settlement. You may need to bring in your accountant and attorney.
- Sell/Distribute Assets: Whatever inventory, fixtures or assets are left after closing and settling accounts get sold and/or distributed amongst partners in the business.
- File Documents: If you are not a sole proprietor, you must file articles of dissolution of your company.
- Close Tax Accounts: Close your federal and state tax accounts. Notify the IRS that you will not be doing business under your EIN any longer. Make sure that you have remitted sales taxes and closed account(s). Make sure that your payroll tax reports have been filed and payroll tax liabilities met.
- Cancel Permits, Licenses, etc.: Cancel your business permits, licenses, insurances, business names, business bank accounts and business credit cards.
- Make notifications: Notify employees, your landlord – if you have one, customers, clients, and contractors. When possible, it is beneficial to leave business on good terms with those with whom you do business, especially if you might be going into another venture. Try to settle whatever business agreements you have professionally and courteously.
- Maintain Records: While it may be tempting to clear away all of your records, you should get expert advice on for how long you need to keep your tax and employment records.
- Take care: Even if it is something that you want and are looking forward to, closing your business can be emotionally exhausting. Have a plan to take care of yourself during this time.
Closing a business is a big decision with both financial implications and implications for personal relationships. It is a choice to be thought through carefully. If you make the decision to close your business, taking the steps to do so efficiently, professionally, and with minimal financial risk will set you up in the best position for stepping into your future after the business closes.
More information can be found on the Kansas Business Center webpage on closing a business: http://www.kansas.gov/business/closing.html
Laurie Pieper, Ph.D.
WU KSBDC Business Advisor