Are you thinking of shutting down your small business? No one intends to close a business early, but many small business owners find themselves in just that situation. It may be for personal reasons, like retirement, or perhaps you no longer feel it’s a sustainable business. Knowing the signs that may point to the right decision and following the proper procedures can make this process easier.
Knowing When It’s Time to Close Your Business
Closing your business isn’t a decision to be made lightly, but you may have a feeling that the end is coming. Maybe the business isn’t performing well or you’re just not getting fulfillment out of the work. Whether the causes are financial, emotional, legal, personal, or otherwise, it’s smart to know when it’s time to call it quits. Knowing when to close a business can save a lot of time, money, stress, and energy. However, remember that even if your business shows one of these signs, it’s not necessarily the end — it all comes down to what you can handle and what you really want.
Net Profit Isn’t Where It Should Be
Your income statement gives you important information about whether or not your business should close. It summarizes revenue coming in versus the expenses going out, along with the net result of these two groups of accounting line items. It’s sometimes difficult to look at your income statement with objective eyes, because you have a personal attachment and love for your businesses. But if you see a consistently negative net profit and you’ve done all you can to improve it, then it may be time to call it quits. You need positive revenue numbers for your business to grow and survive long term.
Bad Cash Flow
Understanding your company’s cash flow is another indicator of its ability to survive. Cash flow statements summarize the cash coming into and out of your business. It’s different than an income statement in many ways, one being that the income statement includes non-cash items. Cash flow gives a much clearer picture of the pulse of your business. If your business consistently shows negative cash flow, it’s a sign it can’t meet its obligations and is essentially treading water or slowly sinking. Regular negative cash flow may mean your business is simply too expensive to operate. You may need to close your business if you can’t increase cash flow, decrease the time it takes for revenue to come in, or tighten the amount of expenses.
Your Health Deteriorates
Running a business is stressful. You might feel exhausted simply due to long hours, but if you’ve experienced major health problems due to the demands of your business, it may be a sign you need to reevaluate what you’re doing. Weight gain, weight loss, prolonged fatigue, consistent stress, anxiety, sleeplessness, and similar symptoms can be signs the business is running you, instead of you running the business. Have a checkup and discussion with your doctor to help you evaluate if your health and daily business-related activities are manageable. But if you question whether your small business is affecting your health, it probably is, and it may be time to call it quits.
Your Personal Happiness Evaporates
Besides financial numbers and health, a very clear sign it’s time to close the business and find other productive endeavors is your happiness level. If you aren’t enjoying the day-to-day business activities as you once were, and irritations from business follow you home to your family and friends, you may want to evaluate the future of the company. Not every day or every part of running a business is fun and fulfilling, but if you’re experience long-term unhappiness, it’s a good idea to make sure this is something you want to continue doing.
Your Business Mission Becomes Nebulous
Entrepreneurs often start their businesses with a clear idea of how they can improve the lives of others, solve a problem, or change the world. Over time, as business operations and goals evolve, your mission statement likely changes as well. If your day-to-day activities stray very far from your original goals, it may be time to reevaluate and see whether you should continue or cease operations.
Should You Sell Your Business?
If your small business is a viable, ongoing concern but you’re leaving for personal reasons, consider selling your company instead of closing it. You can use this step-by-guide checklist for selling your business as a guide.
Closing Up Shop: Finish Work in Progress and End Operations
If you decide it’s time to move on to new ventures and close the business, you should start immediately with a to-do list for closing your company. At the moment when you decide to close your business, you probably have several jobs or contracts outstanding. Even if things aren’t going well financially, you likely still have some work on the schedule. Since you already committed to the work, it’s a good idea to finish all the projects you’ve started or promised to finish.
If you’re unable to complete your contracts, you can exercise any cancellation clauses you may have in your contracts. That may involve paying cancellation fees or returning money already paid to you by your clients. Stop all marketing and advertising efforts immediately, then formally put a stop to your sales and production efforts.
Notify Customers, Employees, and Creditors
You’re ultimately responsible for your business, but other people may have ties to your company and be affected if you close up shop. It’s your responsibility to inform those people of your decision to shut down as soon as possible so they can plan accordingly. Post a sign in your shop, announce your pending closure (and any going-out-of-business-sales) on your social media platforms, and issue a press release or ad in the local newspaper to let people know.
It can be tough to tell your employees that you’re closing your doors, but telling them well in advance gives them time to make other plans. You can make the transition easier for employees by offering them great references and helping them finding new positions. You also need to let employees know their responsibilities for closing down business, wrapping up outstanding work, and turning in any final reports. Process your final payroll, making sure you collect all company equipment, including computers, phones, and keys to company cars before you hand these paychecks out.
You also need to tell your creditors that you’re shutting down. Pay your final bills and make arrangements to settle or pay off loans if you currently owe money to creditors.
Sell Inventory and Assets
You’ve probably shopped at going out of business sales before, and now it’s your turn to host one. Most businesses start reducing products at a modest discount initially, with deeper discounts as the final day in business approaches. If you end up with an excess of leftover inventory, consider selling it online using sites such as Liquidation.com, or strike a deal with a business liquidation company to dispose of inventory and your company’s assets like computers and fixtures. Profits from selling your inventory and assets can go toward paying off any outstanding debt, or you can use leftover money toward starting a new business.
Pay Final Taxes and Close Accounts
You have a lot of final taxes to file and pay before you can finally close the doors on your business. If you collect sales tax, you have to submit final taxes and close your retail sales tax and provincial state tax accounts with the appropriate agencies. You also need to file your final tax returns and close your payroll accounts, your Goods and Services Tax account, and your Harmonized Sales Tax account with the Canada Revenue Agency.
If your company is incorporated, you can dissolve your corporation voluntarily. Look into cancelling your business registration, which means giving up your business number. You should also think about cancelling any certificates or licences held in the name of your business. As you wrap up your paperwork, consult with your accountant and attorney to ensure you’ve done everything properly and haven’t missed any required documents.
Whether closing up your business is a relief or a necessity, following guidelines lets you do it properly without missing vital steps along the way. Keeping track of your finances as you close up shop makes the process easier. 5.6 million customers use QuickBooks. Join them today to help your business thrive for free.