How to Close a Business - The Right Way

An Interesting Anonymous Quote Is Circulating The Internet:

“We were having a good-bye luncheon for an old and dear coworker, as she was leaving the company due to 'downsizing.'

Our manager commented cheerfully, "This is fun. We should do this more often."

Not another word was spoken. We all just looked at each other with that deer-in-the-headlights stare.”   

You know it could be on the horizon. It could be coming:
The business you work for, or your own business, may have to close up shop.

Business Closings on the Rise

How to Close a Business: The Right Way - There are certain steps you need to take when you Use this page as a checklist!

How to Close a Business: The Right Way - There are certain steps you need to take when you Use this page as a checklist!

In 2009, the world has faced the worst economy since the Great Depression in the United States. While not quite waiting in food lines, people are pinching every penny and raiding Junior's piggy bank to make ends meet.

As a result of most (if at all) people saving money during these hard economic times, businesses have been closing their doors left and right, starting with the brick and mortar “Mom and Pop” shops.

At the end of 2008, large businesses followed closely on the heels of the ‘little' retail stores and it is foreseeable that more will businesses will close before the economy returns to a normal buy and sell climate.

Current businesses closing include:

Table 1:  Business Closings 2008-20091

1 In The News. Business Closings in 2009 Due to Economy. (2008, November 21).

Starting a business takes time, money, effort, and the filling out and filing of corporate and government forms. Closing a small business can be devastating as closing a large corporation. The good news is: although just as important, the filling out and filing of paperwork is somewhat less to close a small business.

Closing the doors of a business is not just a matter of locking the door and throwing away the key. Depending on the type of a business determines what legal steps are necessary to close the doors officially due to bankruptcy or a takeover by another individual or company.

Don't feel bad. Although difficult emotionally and mentally, you must realize that small to large business closures have almost become the ‘norm' in recent years. If large corporations are struggling, it is no wonder that small businesses are being hit hard as well. Businesses close almost every day on a world-wide basis.

Since 1992, small businesses have been closing each year and the amount of paperwork filed through government and state agencies reflects the downward trend.

Table 2: New Small Businesses Started in 1992 Still in Business by Year2


2 Bureau of the Census produced for the Office of Advocacy of the U.S. Small Business Administration.

How to Close a Business - What Paperwork is Necessary?

If you, or the business you work, for find(s) itself in economic peril, closing the business doors is often on the agenda of considerations to remedy the problem.

Closing a business requires the filing of various documents; however, there are numerous other tasks that need to take place as well. Additionally worth noting is that small businesses normally do not have the amount of paperwork to file as their large counterparts.

Be respectful of others when closing your business. Don't allow your suppliers and employees to be the last to know that the business is closing. In today's economic times, vendors and employees should be allowed to have sufficient time to find other companies to do business with and work for.

Additionally, if you decide to go into business in the future, you must avoid burning bridges with the people who have provided you with great products and given you quality service.

In the initial stages of closing the business, it is wise to consult an attorney or consult with the Small Business Administration (and your business license as well) to set up a schedule of what to file and when.

At this juncture, if the business is a partnership or corporation, all company member votes to close the business would have been tallied and recorded, and the dissolution papers by the heads of the company or an appointed team written.

Any warranties offered by the business are usually handled by a third-party. Arrangements should be made with that entity to allow the continued honoring of warranties through another company or organization.

Gift cards are normally backed by a financial institution, such as a bank. Arrangements should be made to honor the gift cards either as cash back through the bank or honored at another business.             

In the case of debit credit cards issued by such companies as VISA, American Express, MasterCard, and Discover, the cards can be handled by their internal credit departments as cash-back to the consumer or issuance of another card applicable to a retailer of choice.Points to Remember:

How to Close Business Guidelines and Check List

1. Business members must cast their votes to close the business.
2. Inform vendors and employees that the business is closing.
3. Notify the landlord of the property you rent (if any) that the business is closing. This must be done usually within 30 days.
4. Fulfill all obligations to business' customers before you close the business.
5. List any assets for the business valuation should be business be sold or its inventory used to fulfill any debts. This information is required to fulfill the obligations of the state of operation and/or a buyer of the business.
6. Compile all tax and financial records for the state of operation and/or a new buyer. Be sure to pay all state and government taxes before you close the business.
7. Compile all debts and make payment arrangements with creditors to pay them off. The payoff of all loans and commodities must be cleared before signing termination papers.
8. Refer to the business operating agreement and license from your state and government for compliance information regarding the closure of the business.
9. Contact your state's Secretary of State's office by phone or use their website and obtain necessary termination and dissolution forms, fill them out, sign and submit them. Processing normally takes 1-3 days.
10. Close the business insurance coverage.
11. Close the business commercial bank account.
12. Prepare and file final tax returns, quarterly or annual employment tax forms, and all employee income to report W-2's.
13. Cancel or transfer business names (if applicable), trademarks, and any other permits.

While the closing of any business is not a pleasant task, it can be an easier road to travel if you know ahead of time what the procedures are and how to execute them.

How to Close a Business – Helpful Resources

SBA

Secretary of State Conatact info

Small business Law

Closing A Business Check List

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