How to Close a Small Business


When circumstances dictate that a small business must close, there are several tasks that must be addressed before the company can finally shut the doors. Some of these tasks have to do with complying with local and federal statutes, while others are dictated by sound business ethics. While closing a business is rarely an event that is welcomed by the owners, making sure that all loose ends are tied up can take some of the sting out of the process.

Things You'll Need

  • Accurate Accounting Records
  • Inventory Lists
  • Closure Checklist

Properly Closing a Small Business

Advise all employees of the impending closure of the company. This is done early in the process as a means of showing respect for people who have served the company well. They should not hear about the closure from a third party. While some may choose to leave immediately, chances are the majority will stay on board and help with the process of closure.

Notify all clients of the impending closure of the company. This will allow the customers to place final orders before production is curtailed. Provide clients with a final date to place orders, and make sure you will be able to honor those orders before accepting them. If possible, provide a list of potential vendors who can provide similar goods or services. This is one last way to thank loyal clients who kept the business going as long as it did.

Arrange for the sale of office equipment and other assets as they no longer are needed for operation. This is usually accomplished by doing an inventory of assets, finished goods, and raw materials on hand, then slowly selling off items. In many cases, a company that is going out of business begins to downsize operations as final orders are filled and further production of one or more products is no longer needed.

Close all company accounts with suppliers. Make sure to secure enough materials to honor all final customer orders, then ask for the accounts to be closed out as of a specified date. Also, provide instructions for submission of final amounts due on the closed accounts.

Honor all outstanding financial commitments. This means paying off every vendor in full. Doing so will enhance your reputation and keep the door open if you need to work with those same vendors at a later date.

Assist employees in locating other jobs, if at all possible. At the very least, prepare and distribute letters of recommendation for all employees that you can, in good conscience, endorse for hire with a new employer.

Prepare all financial documents related to the operation of the company. This includes preparation of all applicable tax and financial forms required by local and federal tax agencies. The sooner these forms are filed, the easier it will be to officially shut down the company.

Notify the state where the incorporation of the company is established of the closing, including the final date of operation.

File the final tax returns for the now defunct company. Make note of the final date of operation and the date that the company was officially dissolved.

Tips & Warnings

  • While it is easy to get bogged down in financial details, never neglect loyal employees. You never know when paths will cross again, and you may need their support in a different time and place.
  • Prepare a checklist including all tasks that should be done, and establish a time frame for each action item to be completed. This will help keep you on track, plus provide a quick visual tool of how the shutdown is progressing.
  • Do not leave tasks undone, thinking they will just go away once the company ceases operation. Until all financial matters are settled, assets sold, and taxes paid, the owners of record at the time of the shutdown are still legally bound to conduct the business of the company.

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