A guide to closing your small business on a positive note

As a business owner, you may eventually decide to close your business. Whether retiring, completing a specific project, or shifting focus due to declining demand, setting a closure date is key. This helps you finalize obligations and plan essential tasks.

Consult your accountant to determine if timing your closure offers tax benefits.

First steps

If you have staff, break the news gently before you close, giving them as much time as possible to develop and implement their plans. Document all your employees’ pay and leave entitlements beforehand so you can answer any questions they may have. Make sure you provide employees with any necessary paperwork so they can obtain benefits they’re entitled to. Depending on your business, you may have obligations under the Worker Adjustment and Retraining Notification Act. Download the PDF of the guide, and make sure you understand how and if it applies to you.

Next, let your suppliers and customers know about your closure. You should tell long-standing customers in person before mass emailing all customers and suppliers or announcing it on your website and social media.

If you have a lease on your business premises extending past your closing date, you’ll ideally want another business to take over. Finding someone to take that obligation can be the trigger point for a closing down date. Remember, the landlord usually must 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. It’s important you’re aware of any legal or financial obligations you must meet before you close your business. These obligations may vary depending on the state you operate in. Visit the US Small Business Administration website for their guide to closing your business.

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. Then, once you’ve ceased trading, sell the 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, e.g. power, phone, internet.
  • Rates, insurance.
  • Unpaid invoices from suppliers.

If you have any creditors you need to make arrangements or negotiate settlements with, do so as soon as possible. Cancel any automatic bill payments, as well. Inform all service providers, such as utility companies, insurance providers, and internet service providers about the closure.

 Cancel on-going agreements

There could be several contracts, services, direct debits, or subscriptions you’ve signed up for that should be stopped, some of which may require advance notice. Examples include:

  • Any software or online subscriptions.
  • Leases, e.g. commercial and vehicles.
  • Service contracts.
  • Hire purchase or financing.

Check for any penalty clauses for breaking an agreement early. It’s a good idea to seek legal advice when you finalize your legal and contractual matters because there may be obligations for you to fulfill when it comes to proper termination or transfer of your agreements. A lawyer can advise you on your rights and your responsibilities.

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
  • Report payments to contract workers
  • File your final tax return on the IRS website.
  • Cancel your EIN and close your IRS business account on the IRS website.

Failure to follow these steps could result in penalties, a tax audit, or even legal action, so you must check that you’ve done everything correctly.

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.

Your accountant will be able to help you if you need clarification. Filing dissolution documents, which dissolve an LLC or corporation, means you won’t face ongoing tax bills and filing requirements.

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. Also, 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 several years in case the IRS decides to audit your business. Keep them in a safe place.

Next steps

  • Inform your employees about the closure as early as possible and make sure their pay and leave entitlements are addressed. Notify long-standing customers and suppliers personally before making public announcements via email, website, or social media.
  • Identify and sell excess assets, such as inventory and equipment, before closing. Pay any outstanding debts, including rent, utilities, insurance, and unpaid supplier invoices, so that all financial obligations are cleared.
  • Review and terminate any recurring contracts, leases, or subscriptions that are no longer necessary. Be mindful of any penalty clauses and consult a lawyer to make sure you’re legal compliant with proper contract closure.
  • Complete all necessary tax filings and employer-related tax obligations. Close your business bank accounts, business credit cards, and other financial services to finalize your closure. Store business records securely for at least several years to meet IRS or legal requirements.

While closing your business may not be the easiest decision you’ll face, making a plan and sticking to it will help things go smoothly. Make sure you get professional advice from your lawyer and accountant regarding your financial and legal obligations, so you know when you close your doors you’ve done so properly.