This isn’t the kind of article we enjoy writing. Sadly, as the global COVID-19 pandemic wreaks havoc on our world and our institutions strain to cope with it all, scores of businesses are facing the excruciating reality that remaining in operation just isn’t feasible. As terrible as it is, there are steps you need to take to ensure that the pain of closing your business isn’t even more devastating to your employees and your finances than it needs to be.
In this article, we’re going to detail what you need to do to make sure that closing a business isn’t any worse than it needs to be.
Closing A Business Isn’t Just A Matter Of Locking Your Doors
It may seem like adding insult to injury, but closing down a business involves much more than just locking the doors and selling off your equipment. It involves taking legal and administrative steps that may vary depending on the nature of your business and the particular local, state, and federal laws that apply in your situation.
It’s a lot to handle — and it comes at a time when you’re unlikely to be prepared for the emotional toll of it all. However, we’re here to help.
The Essential Doâs & Donâts Of Closing Down A Business
Closing your business is never an easy thing to do — particularly at this moment in history. Here’s a quick rundown of what you should do — and what you shouldn’t. Don’t worry; we’ll go into more detail later.
- Do: Communicate the situation with employees and customers
- Do: Make arrangements with any service providers
- Do: Notify the relevant government agencies as required by law
- Do: Talk to a lawyer and/or an accountant
- Do: Make a plan of action
As for the don’ts:
- Don’t: Panic (I know — easier said than done, right?)
- Don’t: Just lock up and disappear
- Don’t: Ignore any bills or creditors
Give Notice That Your Business Is Closing
Emotionally, this may be the hardest part of the whole process. Nonetheless, those affected by your business’ closure deserve nothing less than your full honesty and frankness.
Of course, I should note that if yours is a solo business operation — either as a sole proprietor or as the lone LLC owner — the decision is yours alone, but if you have partners and/or investors, you’ll need to get everyone on the same page first.
As you likely realize, your employees should be the first to hear the truth, given that they will be the people most impacted by the closing. You’ll need to let your employees know what your closing date is and ensure that arrangements to give them their final paychecks are made, along with any severance pay you’re going to offer. Regarding final paychecks and severance pay, state law may dictate how you handle these arrangements, so you may need to consult an attorney for guidance.
Other important things you’ll need to hash out with your employees include the need to reimburse them for any work-related out-of-pocket expenses they may have incurred and collect the company property they may be using, such as vehicles, laptop computers, and work phones.
Have a look at the U.S. Department of Laborâs Employment and Training Administration Fact Sheet to learn more.
Your customers will also need some advanced notice of your plans. Make an announcement — a public one and one to subscribers to your customer mailing list, should you have one — and fill everyone in on such details as how long your gift cards will be honored for.
Notifying Government Agencies
This may vary depending on your industry and where your business is located, but you will likely need to notify federal, state, and/or municipal authorities about your shutdown plans. Steps you may need to take include filing dissolution notices and canceling any relevant permits, licenses, registrations, and even trademarks. Again, contact a lawyer if you’re unsure of your exact legal obligations here.
This step may be one of the trickier ones. How you deal with your creditors in this situation will depend on your type of business and the type of debt you owe. Depending on your circumstances, your creditors may have to wait a set period before attempting to collect, or they may be able to try to collect immediately. If you have a financial advisor you can contact regarding your debts, now would be the time to do so.
For more information, read our post: Canât Make Your Credit Card Payments Due To The Coronavirus? These Credit Card Issuers Are Offering Assistance
Notifying Service Vendors
The paid services you use on a continuous basis — from your cleaning service to your payment processor to everything in-between — will need to be notified of your business’ intent to close.
Some of your service cancellations will likely be quite straightforward. Others, such as your credit card processor, may be trickier. Your processor may have put an ETF (early termination fee) into your service contract. You may be on the hook for this, though some merchant accounts and processors are more generous than others in this regard.
As for contracts with your point-of-sale or eCommerce provider, if you’ve been paying per year, you won’t get a refund on the remaining portion of your agreement, but you also won’t face any additional charges. With other software contracts and services, cancellation terms may vary, so you’ll need to ask your vendors questions about anything you’re unsure about.
Close Up Shop For Real
As your business approaches its final operational day, you’ll need to do what you can to wrap things up. Depending on the stock and supplies you’ll have on hand, you should consider measures such as clearance sales to sell your remaining inventory. The quarantine policies of your area will determine whether the sale should be online-only.
Returning Leased Or Rented Equipment
If you have any hardware or other equipment that you’re renting or leasing, it will need to be returned (and you might want to monitor your tracking numbers for anything in the mail). In the case of credit card terminals, you may need to be especially careful — any free equipment needs to be shipped back in a timely manner, or you may be hit with some outrageous fees. See our article on credit card terminal leases to get a sense of the pitfalls here.
Liquidating Any Remaining Assets
You’ll need to sell off the remaining fixtures in your business as well. If, after your closing date, you have any remaining assets, you can try to sell the items online or work with a liquidation company to get back some of the value.
Luckily, you should be able to sell your remaining inventory online — and if your warehouse is still full of stock, you have the option of contacting a merchandise liquidator.
Closing Up The Property
Finally, you’ll have to take the step of dealing with your lease. Contact the property owners to come to an arrangement for doing this. If the property belongs to you, you may not need to take immediate action, though the price of real estate may go down in the months ahead.
Deal With Your Business’ Outstanding Financials
As you close up shop, you’ll have to deal with any outstanding financial concerns you have. You may have several such concerns, which is why the order of resolution is crucial.
Collecting Any Outstanding Accounts Receivable
Many businesses may have outstanding balances owed by clients. While this obviously isn’t an ideal time to try to collect on balances owed, it’s only going to get harder from here, so you’ll want to try to collect now if you have any hope of seeing that money again.
If possible, you should try to collect before your official going-out-of-business announcement so your clients don’t feel as though they can just wait for you to disappear. Offering discounts to those who pay immediately may also be wise, as it increases the likelihood that you’ll get at least some of your money back.
As it turns out, you do have another option in this situation: you could sell these balances to an invoice factoring company. Check out our explainer article on invoice factoring if you’re curious as to how it works.
Filing Income Tax
At this point, you’ll need to complete your final income tax filing. Read our complete guide to small business taxes for more information. And for additional tax tips, have a look at our tax tips for small businesses.
Remember that this process will vary depending on whether your business is an LLC, a sole proprietorship, a corporation, etc.
Filing Sales Tax
Likewise, you’ll need to do your final sales tax filing. We’ve published a small business sales tax guide for those interested.
Dealing With Payroll
This step will involve making out your final checks to your employees, completing payroll taxes, and issuing severance pay. Again, you’ll need to follow federal, state, and municipal laws regarding your workers’ final checks and severance pay.
Your final payroll should resemble your year-end payroll. To that end, here’s a guide to doing your year-end payroll.
Paying Any Outstanding Debts
Your debts will need to be paid before you can claim any of your remaining financings. Pay off your loans and all other bills to the greatest extent you can.
Monitor & Keep Records Of Your Business
So you’ve completed the closing process and your business’ shutdown is now finalized. Unfortunately, you may still have business-related matters to deal with.
The law may require you to keep your financial records and tax filings for a certain length of time. Consult a lawyer or CPA if you’re unsure what you need to keep and for how long.
You should also monitor your bank account for any suspicious deductions from companies your business has worked with in the past. Unfortunately, many business owners find themselves still being charged by service providers 1-2 years after closing, so you’ll want to nip this in the bud.
Additional Resources For Closing Your Business
- The IRS provides an online guide to closing your business and the steps you need to take to do so.
- Likewise, the SBA offers a published guide to closing your business.
- FindLaw offers a guide to closing down your business with a particular focus on the legalities involved.
- The legal site Nolo.com offers this 20-step checklist for closing your business.
Closing Down Your Business Isnât Easy, But Doing It Correctly Is Important
You may not feel highly motivated to do your due diligence at a time like this. This is entirely understandable. Nonetheless, if you don’t want to find your business running afoul of employment law — and if you don’t want creditors harassing you and asking for money at a time when you’re least equipped to deal with it — you’ll want to make a good-faith effort to close down your business the right way.
Again, the more complex your business, the greater the likelihood is that you’ll need to enlist the help of an attorney and/or a CPA.
Here is a link to our COVID-19 resource hub â we’ll be adding to our pandemic-related informational resources on a continuous basis. You may also want to check out ourÂ Small Business Outbreak & Pandemic Guide: Coronavirus Edition for more on how to deal with this unprecedented situation.
Looking for more help? Check out these resources from Merchant Maverick:
- How to avoid defaulting on a business loan
- Small business guide to filing for bankruptcy
- Guide to business interruption insurance
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