Keys for Winding a Business DownMay 21, 2018
Sometimes despite the owners’ and managers’ most valiant and creative efforts, a business is simply unsustainable. Consider how Netflix, a game-changing startup which Blockbuster passed on purchasing at a $50 million price tag, has nearly eclipsed Disney in market cap value, yet Blockbuster is a memory of a business model which now seems as obsolete as the 13 eight-track tapes for 1 cent from Columbia Record and Tape Club.
How to Close A Business – Important Steps to Consider When Winding Down
Making the decision to close a business is not an easy one.
Whatever the circumstances are that lead you to this choice, it is your responsibility as a business owner to cover all your bases when shutting down operations and liquidating assets. You don’t want to be left with any surprising debts or obligations, so it is important to be as thorough as possible and do your due diligence to make sure all your responsibilities are accounted for. It can be an overwhelming process, so you may be asking yourself – where do I start?
Follow this checklist to know what information you should have when you begin the process of winding down your business. A wind-down plan should resemble a business plan with strategy, tactics, timing, responsibilities and associated resource requirements and costs assigned to it.
Collect & Pay Off Debts
A first step is to reconcile your accounts receivable and accounts payable accounts. It can be difficult to collect any outstanding debts if your company no longer exists, so you should employ an aggressive collections strategy to collect your debts before your company is dissolved. You should also inform any creditors like lenders, insurers, suppliers, vendors, and service providers that the business will be no longer be operating or contracting them for services and pay off any outstanding debts. Of course, review all of the debt covenants on things like lines of credit, rent, equipment, and vehicle notes, e.g. and first identify any personal guarantee exposures for the shareholders.
Inform Customers and Employees
Other individuals that interact with the business in any way will be affected by its closing – most importantly customers and employees. Depending on the nature of your business you may not have long-term contracts or regular clients – but it’s important to communicate with any current customers. You can do this through a press release or a direct announcement to a mailing list. If you have any outstanding jobs or jobs in progress, they should be completed before the business is officially closed. Not only will this maintain your reputation and relationships for future projects but will protect you from any liability for not completing contracts. Additionally, it’s important to inform employees of your intent to close the business with enough notice so they can seek out a new job; of course, you want to make sure your employees are paid what they are owed. Owners often have fiduciary responsibilities to employees and are often personally responsible for wages and taxes.
File the Necessary Tax Forms
As you would imagine, there is a lot of paperwork associating with winding down a business. First, you need to file federal and state employee tax forms after the last paychecks have been issued. Next, you’ll submit your state sales tax form and contact your state agency to close out your tax account. Then you must file your final income tax return – the process for this will vary depending on whether your business is a sole proprietorship, partnership, LLC, or corporation. Lastly, you’ll file your personal employer tax return.
Liquidate Inventory and Assets
After debts, employees, and taxes have been paid, if you have any excess inventory or business assets – whether it’s tangible equipment or intangibles like trademark or goodwill – it can be sold. If you have a retail business, you can have a “going out of business” sale. You can also take advantage of sites like Amazon, eBay, or Craigslist to sell excess inventory or equipment. There are also inventory liquidators who will directly buy excess inventory. The distribution of any remaining cash or asset should be distributed first into the business to fund the business’ obligations and the business owners need to be the lowest priority in the waterfall of who gets paid.
Contact an Expert Business Consulting Firm
These steps just scratch the surface of what goes into winding down a business. It can be an extremely challenging process, but you don’t have to do it alone. The business advisors at Qorval provide bankruptcy, trustee, and wind down services to help you through every step of the process with their expertise and guidance. Contact Us today to learn more about how we can help at 239-430-0303