If you're ready to develop a business exit strategy, here are points to consider when closing or winding down your small business with Fifth Third Bank.
Most business owners begin their ventures with a plan of building and growing a successful company that they can then sell or perhaps pass down to their children. However, in many cases business owners may find themselves needing to wind down their company, whether they're making a career change, moving, or closing a venture that didn't perform as well as they anticipated.
Closing a company will impact employees, shareholders, customers, as well as your personal finances. For these reasons, the strategy for closing your business demands as much attention and thought as the business launch. Take a methodical approach to wind down your company, and you’ll be able to cleanly close one chapter of your business life—and set yourself up for whatever comes next.
Here are a few steps to take on your journey to winding down your small business.
1. Get Your Finances in Order
If you’ve decided that shutting down your business is the right choice, you’ll want to get a handle on some critical aspects of your company finances—before you make any big announcements.
To start, examine your accounts receivable and determine how much you’re owed from current clients. Then, focus on collecting those funds as soon as possible, especially if they’re already outstanding. Doing this before you publicly announce your closure is essential, because the specter of your company closing may lead customers to believe they don’t need to make their final payments.
On the flip side, also determine how much your company owes and to whom. Evaluate all your expenses, paying particular attention to any federal or state taxes that you owe on employee wages or otherwise. The latter is especially important because the IRS requires that a company pay all its payroll taxes, even if they’ve gone out of business. Company owners are personally liable for such taxes. So pay any owed taxes first before you settle up other outstanding debt.
2. Communicate What's to Come Next
Now comes the difficult part of informing employees, customers, vendors, and other stakeholders about your company’s closure.
- Begin with your employees. Inform them about the reasons for the closure, the timeline, and how the company plans to handle any money owed to them, including vacation time. Also, give them instructions for what to tell customers. Provide a document with all the vital information written out, as well.
- Inform your customers. Depending on the type of business you run, give your customers ample warning that the services you provide or products you sell will no longer be available. Offer up a sale on assets and inventory, which is an excellent way to generate some final revenue. And do everything you can to make good on final orders.
- Notify your creditors. Your business also works with many other companies, from professional services to subscription software to your building landlord. Let them know that you’re closing down and settle up on all the debts you can. Consider negotiating final payments that may be less than what you owe. In every case, ask for documentation that you paid your bill in full, in case creditors come after you in the future. If paying down debts is impossible, investigate the benefits of bankruptcy, what it means for your creditors, as well as your credit and financial situation.
3. Tackle Necessary Paperwork
Because your business is a legal and taxable entity, there’s a considerable amount of work that goes into adequately wrapping it up. As a first step, consult your professional advisors, such as an attorney and accountant, for a comprehensive list of what you need to do. Some potential tasks business owners face include:
- Contacting state and federal government offices. Investigate the necessary documents for dissolving your company. The exact processes vary by state, but in general, you’ll need to file some form of a certificate dissolution that formalizes your business closure. You may also need to obtain a tax clearance, which shows that your company paid its taxes, as well as a partnership dissolution, which denotes that the company partners can no longer incur debt on behalf of the organization.
- Canceling company licenses and certificates. Contact local agencies that issue permits and required business licenses and cancel your licenses. This is a crucial step, because you don’t want a future business that may have the same or similar name to incur penalties on your behalf.
- Completing the IRS checklist. While the above tasks address the organization and dissolution of your business, you’ll also want to close it down from a tax perspective. From sending final 1099s to contractors to filing your last business taxes, there’s a host of tasks that the IRS requires to shut down a company officially. Keep in mind that in addition to paying final payroll taxes, you’ll need to file a company tax return for the year in which your business closes.
Not every business ends in the way you planned. But by paying close attention to the details as you close your company, you can neatly wrap up one venture and clear the path for your future.