When you’re starting a business, the last thing you think about is going out of business. But thinking about the process is helpful no matter what stage of business you’re in, because the very same people who helped you get set up can also help you dismantle things cleanly, quickly, and relatively painlessly.
Few people think about going out of business until it is about to happen, but having a plan in place can be the difference between a smooth transition and a legal/financial nightmare. Have you considered what will happen to your business when you retire? What if you become disabled or die?
Sure, everyone thinks they’ll get to sell out or go public, but that’s not the reality for most business owners. It’s important to know what’s coming and have a plan of attack ready.
Assemble Your Team
If you’re the sole owner of the business, you’re the only one who gets to decide when it’s time to shut down. But if your business is a partnership or LLC, it’s important that all the owners meet and plan the strategy together.
You must decide on a date, what happens to leftover inventory, what happens to patents/trademarks/copyrights, and who exactly you’re going to enlist for help – because closing down a business is just as complicated as starting one up, and if you do it wrong, you could be on the hook financially and legally.
You’ll need a lawyer and an accountant at minimum, and enlisting the help of your banker and business broker adds another level of expertise. Whatever you and your co-owners decide upon, put everything in writing so there is no potential for misunderstanding.
Take Care of Your Employees
Your employees have served you faithfully, and without them, your business would not have succeeded as long as it did. You have a moral obligation to not leave them out in the cold, but even more importantly, you have a legal obligation. State laws vary, so this is an area to discuss with your attorney.
Some states require you to provide employees with 60 days written notice before going out of business, others have no requirement. Some states require that you provide the final paycheck on the last day of business, others grant a bit more leeway (and you may also have to pay for unpaid vacation time and sick days).
Notify your employees informally as soon as your plan is in place and shutting down is inevitable, so they have a head start in looking for new employment. You should also happily provide references (or leads if you know of any) and do whatever you can to make the transition easier on them.
Do the Paperwork
There is a lot of paperwork involved in closing a business. If your business is an LLC, remember to file dissolution papers or you will continue to be responsible for taxes.
Formally cancel all licenses, permits and registrations, and remember to cancel your fictitious name registration as well. It seems like a lot of unnecessary phone calls and form filling-out, but the goal here is to tie up all the loose ends.
If you leave everything hanging, someone else could use your business’s identity for nefarious purposes and you would be held responsible because everything is still registered to you. By formally canceling everything, you’ll be on record as having washed your hands of the business from that point forward.
Settle Up Accounts
Notify all your vendors that you’ll be going out of business and cancel your accounts. This may mean that you have to settle up some debts – this is the part of going out of business that can get expensive if you tend to carry multiple lines of credit, and it may be the final financial hit that your business just doesn’t need – but get through it anyway.
Settle up with as many creditors as you can, and make concrete repayment plans with the rest. Your lawyer and your accountant should be in on this. Speaking of the lawyer and accountant, you’ll need to pay them too, so don’t forget to set aside enough money when you’re deciding which debts to pay when.
Yeah, going out of business is never a fun thing – even if you’re only retiring, you probably had dreams of passing the business on rather than getting out entirely, but having a solid team and a solid plan makes the whole process less stressful and heartbreaking than it would otherwise be.