Several businesses closed down during the past year. With economic stability going downhill globally, many small businesses, as well as bigger corporations, decided not to risk their limited resources and put an end to their years' worth of effort.
Already, the whole situation is quite stressful for business owners, and closing down formally demands input, which most of them fail to provide at the eleventh hour. And we truly understand that. Thus, if you have your thoughts aligning on the same note, we advise you to keep yourself fully prepared.
An informed and prepared decision will surely save you from having to face further loss and disaster. To assist you with the very process, here is an all-embracing and comprehensive guide about how to formally close a business. Let’s read on to learn more.
Step 1: Discuss It With Your Team
Perhaps, the first and quite essential step towards initiating the closure is discussing your plan with your team. No business is a man’s island. It takes collective effort to get things running and working. And this brings us to the point that whether directly or indirectly, you will have someone else in the loop of your business decisions as well. And they are your team.
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Hence, to begin with, the entire process, arrange a meeting with all important authorities. These may include your co-workers, shareholders, the board of directors, and so on. You cannot proceed with your plan unless everyone agrees. In case you fail to win the majority’s vote, you will either have to part ways or continue with business just as is. If you get the majority to see and understand your take, then you may proceed with the second step of calling your business off.
Step 2: Develop an Exit Strategy
As mentioned earlier, formally closing down a business requires a whole lot of input. Step two is where we talk about it.
Once you reach a mutual decision with your team, it’s time for you to develop an exit strategy. Some businesses have their exit plan ready beforehand. If your business belongs to that small portion of the highly sophisticated and planned business, then you may skip it altogether.
If not, then do not worry. You can easily develop an exit strategy considering the current money-making status of your business, with the help of professionals, including:
If your business is running, you may have the option to cleanly exit along with making a profit. But if your business is deep down in loss, you may have to give some thought to planning an exit to minimize losses.
Step 3: Inform Your Employees
Once the line of action of the plan is ready and in hands, it’s time to make the decision official. Let them know about your plans at least a month or two earlier so that they can start looking for another position.
Note that informing your employees will not only be for their good but yours too. You don’t want to have a mishap and loss of imbalance awaiting you in your last days of closing down.
As you notify them, begin working on parting ways officially. Clear out their pending wages. Also, make legal records for the release of final payment and if you have given any bonuses or tips.
The same applies for EIN, i.e., Employer Identification Number. When dissolving your small business, you need to cancel it out. Plus, also nullify any representative cards handed out to employees to avoid getting indirectly involved in any illegal activity.
Step 4: Finalize Paperwork
Next, you have to dive into the legal formalities. These may include canceling out the registrations for any additional permits, licenses, and operational legalities and formalities. Businesses may have to conduct these cancellations separately for every region that they currently operate in. Being a small business, you may have to do it locally only. Regardless of the fact, it is still just as important and you cannot neglect it at any cost. That’s because it may result in legal implications later on, should you decide to pursue business in another or the same field. Along with this, you must not forget to look into your final tax return.
Step 5: Completing Remaining Tasks
Another very essential step in closing your small business is completing all remaining tasks concerning your clientele. Certainly, you will do all that you have to for your convenience. But at this stage, you ought to remember that your customer’s convenience is still your top concern until the last day.
Hence, inform them about the official closure via a public announcement. You can do so via email or getting it published on social media or newspaper. Other than that, complete all promised jobs, such as delivering goods or providing services. If your company deals in contract, then you ought to complete your job. Or if that is not possible, then at least inform your client that you will not be able to do so beforehand. And of course, in this case, you should be returning paid amount.
Step 6: Pay Off Outstanding Dues & Distribute Inventory Items
Lastly, and finally, it’s time to declutter. Check up your finances yet again and determine if any debt is due. If you have enough and ample financial resources at hand, do not waste a second in returning the due amount. However, if you are short on financial resources, you may consider requesting an extension from the relevant authority.
Alternatively, you can use your business assets to make money. Sell off your business assets or inventory items and arrange the required amount effortlessly.
If both things are aligned, i.e., you do not have to worry about debts and still have inventory items, then consider distributing these or making some last profits. If the goods are old but still usable, you can buy industrial packaging materials from a third but reliable party, such as Verde Trader, to pack them. Their top-notch industrial packaging will restore the lost value of your goods. You can do the same for second-hand expensive equipment. And then sell it out, of course, at honest and genuine terms.
Summing up, for the formal closure of your small business, you have to look into everything systematically. Be it the planning or executing. Doing otherwise will not only result in a loss but may also leave you with heaps of regrets. Hence, if you got time at your hand, we would suggest you better give it the time and thought it needs. With that said, good luck!