How to Dismantle a Business

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No one ever started a business expecting it to fail. In these volatile economic times, however, even the best-conceived enterprises may suffer setbacks so severe that they are forced to close their doors. If this happens to you, take these steps to close down operations safely and preserve whatever assets remain.

Identify your assets. These may include intellectual property such as photographs, text, scientific formulas, concepts and products as well as physical inventory such as chairs and computers. Security deposits and rental credits are also assets. Keep this comprehensive inventory available to lenders, lawyers or potential buyers who may request it.

Decide if bankruptcy is the best course of action. Not all businesses that shut down must file for bankruptcy. It may be possible to liquidate all assets and close the doors without filing. However, if you choose not to declare bankruptcy, keep in mind that customers or creditors may sue individual officers of the company for money owed.

Consult with a bankruptcy lawyer. If you have decided to declare bankruptcy, a lawyer can help you choose which type is most appropriate for your situation. (See 240 Survive Bankruptcy.)

List assets for which you (or another individual business owner) are personally liable. For example, you may separate debt secured against a personal mortgage (or on a personal credit card) from company debt when negotiating payment to creditors.

Sell office items and liquidate all assets. Doing this yourself has advantages: You know the market and have industry contacts who may want to purchase your stock when you liquidate. However, hire a third-party company if time is an issue.

Develop a plan for repayment of creditors to the extent that you are able. Pay trust-fund taxes first; these are the taxes withheld from an employee's paycheck, and they must be paid no matter how old the debt becomes. Second, pay vendors or employees essential to the business's closing process. Third, pay debts for which individuals are jointly liable with the business.

Arrange for final tax returns and issuance of W-2s to employees. Offer to write references for employees who are job-hunting.

Exchange personal contact information with co-workers and employees with whom you wish to keep in touch. Networking with them may be the path to your next business venture (see 201 Make a Networking Plan and 204 Set Up a New Business).

Tips & Warnings

  • Save digital files and hard copies of all business records to avoid losing historical data about your company when your computer hardware is sold or destroyed. Work with your IT team or hire a consultant to make sure all critical files are safely backed up and stored. See 190 Organize Computer Files.
  • Research the fair-market value of your assets so that unscrupulous buyers don't take advantage of you.
  • When liquidating assets, keep a paper trail of all attempts to sell them, clearly stating their condition and value and your efforts to find a buyer.
  • If possible, avoid securing large amounts of personal debt when growing a business. This can place you in an uncomfortable financial situation if the business goes bankrupt.

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