A step-by-step plan to help close your business down the right way
There can be a number of reasons why a business closes. Possibly the owner wants to retire and it’s too hard to sell the business as a going concern (many professional service businesses where the principal is the core provider falls into this category). Maybe the business no longer has any future revenue (contracts have expired or the business was set up for a specific purpose or project). Or worse-case scenario, demand has fallen, the business is no longer viable and the owner has taken the tough decision to close.
Regardless of the reason, once you’re sure that closing down is the way forward, it’s best to set a date for when you’ll stop trading. It places a definite end date for all your obligations (check with your advisers or accountant if there is any tax benefit for ceasing in a particular month.
If you have staff, break the news gently before you close, giving them as much time in advance as possible to put their future plans into action. Document all your employees’ pay and leave entitlements so you can answer any questions they may have.
Next, let your suppliers and customers know about your closure. You may wish to tell long-standing customers in person before placing an announcement on your website, social media, or sending an email to all your customers and suppliers.
If you have a lease on your business premises that extends past your closing date, you’ll ideally want another business to take the lease over. This can be the trigger point for a closing down date; when you’ve found someone to take that obligation off you. Remember the landlord will usually need to agree to assign the lease to someone new.
Regardless of when you’re closing, talk to your bank, lawyer and accountant as early as possible to seek further advice.
Sell assets and pay debts
Start selling the assets your business doesn’t need before closing, such as excess stock and equipment you rarely use. Once you’ve ceased trading, sell remaining assets such as computer equipment, office furniture and vehicles. If possible, find buyers for these items before you close.
It’s then time to pay any outstanding debts which could include:
- Final rent payments
- Utility bills (power, phone, internet)
- Rates, insurance
- Outstanding invoices from suppliers.
Cancel on-going agreements
There could be a number of contracts, services, direct debits or subscriptions that you’ve signed up for that should be stopped, some which may require advance notice. Examples include:
- Any software or online subscriptions
- Leases (commercial and vehicles)
- Service contracts
- Hire purchase or financing.
Check if there are any penalty clauses for breaking an agreement early and if you need to, seek legal advice.
File final taxes
Completing your final tax returns and paperwork will vary depending on the structure of your business, as sole traders, partnerships and companies have slightly different rules.
You may need to:
- Pay employees their last pay
- Pay final employer-related taxes
- File your final tax return.
Failure to follow any of these steps could result in penalties, a tax audit or even legal action, so it’s essential to check you’ve done everything properly.
If you have a company you want to de-register, make sure:
- The company is no longer in business
- All your business debts are paid
- The company has distributed its assets
- There are no creditors (people you owe money to).
Your accountant will be able to help you if you are unsure.
Commence the closing down process
Contact your bank to decide when to close your business accounts and any business credit cards or other services that need to be terminated. Notify suppliers to close any business accounts you may have left open.
You’ll also need to store your business records, tax returns and other evidence for a number of years in case the IRS decide to audit your business. Keep them in a safe place.
Closing down your business is never an easy decision but making a plan and sticking to it will help things go smoothly, allowing you to move forward with your new plans, worry-free.