The coronavirus has forced thousands of businesses across the world to close their doors temporarily. Unfortunately, many of those same businesses don’t have enough of a cash reserve to keep them going without revenue.
If you’re thinking of closing your doors for good, our hearts go out to you. Before taking the steps outlined in this article, take a look at some of these resources to see if there are more options:
- How to bounce back to cash flow positive amid the coronavirus
- 5 ways to prevent the coronavirus from stopping work at your small business
- 4 questions to consider before you temporarily close your business
If it is time to close your business, you might want to walk away and never look back. But closing a business is a bit more complicated than that. There’s legal paperwork you need to complete, assets you need to distribute, and employees you need to pay. If you walk away without fulfilling all the requirements, you risk legal disputes, a tarnished reputation, and unnecessary fees.
Use this 10-step guide to close your business as painlessly as possible. Following these steps can ensure you close down your business the right way, allowing you to carve a new path forward.
Also Read: Try QuickBooks Online Accounting Software for Global
Step 1: Create an exit strategy
The decision to close a business is not one you have to make on your own. If you own a partnership or limited liability company, you may need to consult with other owners. If you own a corporation, you may need to consult with your board of directors. Work with your stakeholders to formulate an exit strategy and map out the best way to shut down the business. Then consider getting help from lawyers, bankers and accountants, tax professionals or your national tax office. Formulating a plan before deciding to cease operations can help you navigate the closure process smoothly.
Step 2: Notify employees
You’ll need to use your best judgment when telling your employees about your decision to close. But completing some tasks, like selling your assets, could be difficult if your employees aren’t aware of what’s happening. Part of your strategy should include how you’ll manage communication with employees.
Some regulations detail when you must issue each employee’s last pay cheque. And keep in mind that you’ll need to reimburse your employees for any out-of-pocket expenses. You’ll also need to collect company property, including mobile devices, cars, and computers.
If an inability to pay employees is part of the reason you’re closing your business, you may have options:
- How to avoid employee layoffs during the coronavirus outbreak
- 10 options for paying your employees when you can’t make payroll
Step 3: Collect or sell outstanding receivables
If you have outstanding accounts receivable, you’ll need to implement a collections strategy. Once you close your business, it can be much harder for you to collect accounts receivable. Other business owners may be less inclined to pay. And their accounting practices may not allow them to pay an individual over a business entity.
But collecting outstanding accounts can get you cash in hand, which can be helpful as you prepare to close. To improve your efforts and your chances of getting paid:
- Make collection attempts before you announce your plan to close the business. Otherwise, customers may stall payments or assume they don’t have to pay at all.
- Offer discounts for immediate payments, especially if you have aging receivables. You can increase the discounts as the time of your closure approaches. Sometimes, it’s better to collect some funds than none at all.
- Instead of just sending collection letters, try calling to collect payment.
- For the accounts you can’t collect, consider selling them to a factoring agency. Factoring agencies purchase unpaid invoices at a discounted rate, which can put some cash in your pocket. You won’t recoup the total amount owed, but you’ll receive a percentage of the invoice.
Step 4: Sell your business assets
If you have excess inventory, now is the time to sell it. Selling inventory can provide you with the cash necessary to pay any outstanding debts. You might start by selling products at a discount. Consider selling remaining inventory on sites like eBay, Amazon, or Craigslist. If you have a warehouse full of stock, talk to an inventory liquidator. These companies buy excess inventory for a percentage of its worth or help sell it through other channels.
Step 5: File articles of dissolution
Now that you have a more precise look at your finances, you should file articles of dissolution. You’ll need to submit articles of dissolution in every region you’re registered to conduct business. Paperwork can vary from region to region, but in many cases, you can e-file your articles.
Step 6: File other relevant paperwork
You likely have other business accounts to close out. Examples include licenses, registrations, permits, and business names. Remember that you may need to file paperwork outside of your Secretary of State’s office to fulfill these obligations. You may also need to do this at the local and federal levels. And as long as you’re done collecting accounts receivable and making payments, you can close credit cards and bank accounts. The same goes for any rent or utilities.
Step 7: Inform your customers and complete jobs in progress
You’ll need to inform your customers that you intend to close your business. Depending on the size of your business, you may issue a press release. Or you might publish a statement in your local paper. You could also post on social media or send an email to your customers.
You’ll also need to address your outstanding jobs. If you can’t finish jobs in progress, you may have to refund payments made on those jobs. Or you may need to negotiate early termination. Some contracts include a cancellation provision that requires you to pay a fee if you can’t complete the project. If it’s within your means, paying the fee may be the easiest option. If you can’t pay, call the customer, explain your situation, and ask them to end the contract.
Whatever you decide, communication is critical during this time. It’s better to be upfront and honest with customers. If you have to close your business due to the coronavirus, you may be able to cite “impossibility of performance” as grounds for contract termination. Contract impossibility occurs when you cannot fulfill a contract under circumstances like natural disasters, government decrees, or other unforeseeable events. Check with your attorney to see if your contracts qualify for this type of termination.
Step 8: Notify creditors and pay outstanding debts
You’ll need to pay any outstanding debts and inform your creditors that you’re closing your business. Some laws govern how you should do this. Otherwise, here are some general guidelines to keep in mind:
- Inform unsecured creditors and suppliers right before you close. Try to time this notification so that you can continue to receive the inventory and supplies you need up until the moment you close.
- Manage bank loans carefully. In some cases, as soon as you inform your bank that you’re closing your business, they may deduct your loan balance from your business bank account.
- Sole proprietors and partnerships can send a letter to creditors, telling them you’re closing and asking for a final bill. Your creditors will have a certain amount of time to file a claim against you for unpaid debts.
- LLCs and corporations can send notification letters to creditors as well. Research your local laws on when creditors must submit their claims and include this information in the letter.
Step 9: Submit final payroll forms and file taxes
After you issue final paychecks, file employment tax forms and make the business tax deposits on the regular schedule. If you’re short of cash, contact your national tax office to discuss options to reduce the amount you owe.
Next, you’ll need to submit your sales tax forms and any taxes you collected up to the date of closing. Write “FINAL” across the top of the form. Then talk to your local agency about how to close your tax account. Depending on how you set up your business, your national tax office may have requirements for filing final income tax returns.
Lastly, you’ll need to file your final tax returns if you hired employees or independent contractors. File forms and make payments by their regular due dates, and mark them final.
Step 10: Distribute remaining cash or assets
Once you’ve paid all debts, taxes, employees, and loans, you can distribute the remaining funds to owners. You should not do so until you’re positive that you’ve paid off all business debts.
This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by region or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does it have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.