How to Close a Business Without Bankruptcy
You have decided to close your business and now there is equipment to return or sell, employees to take care of and taxes to be considered. Although some owners declare bankruptcy as a way of closing a business, it is not necessary. You can close a business without the added financial burden and possible embarrassment of bankruptcy procedures.
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Instructions
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Make a list of all your debts, from highest to lowest or most important to least important in order to determine how much it will cost to pay off your creditors. You will need this list later when you close your business.
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Make a list of all your assets and their current value. Be realistic. The computer might have cost $2,000 when you bought it a year ago, but it might be worth just $1,000 now. If possible, have an accountant assist you with the valuation of assets.
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Set a closing date of your choosing, but many business owners choose the end of a business quarter for tax purposes.
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Tell your employees that you are closing your business. Most of the time this will not be a shock since employees know when business is going well and when it is not. Give them as much warning as possible so they can begin their job search.to explore other options.
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Hold a going out of business sale as soon as you have set the closing date. Lower your prices so they are more palatable to customers. Keep the sale going until you reach your business closing date.
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Liquidate your assets by selling as many of them as possible. If it is an option, return unused supplies and equipment to where you purchased them.
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Pay off your creditors using the proceeds of your sale of merchandise and assets. If you do not have enough funds to pay them all, negotiate a lower payoff amount or a repayment plan. Creditors often will consider a smaller payment rather than sue you for the full amount or forcing you to file bankruptcy where they could receive less than what you are offering to pay them.
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File your final tax return. According to Internal Revenue Services' Small Business Division, if your business has an Employee Identification Number (EIN) you must state in writing that the EIN will no longer be used for business purposes. Ensure that your business has met all state requirements for closure. The IRS website has a checklist that you can use to make sure you file all necessary paperwork.
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Tips & Warnings
Stay calm and upbeat. All businesses have a life cycle. Closing a business is part of that cycle.
Hire an accountant and an attorney who are familiar with business closures.
When selling merchandise and assets, do not lower prices too much too soon. Slashing prices too soon will cut into your profit margin and you will have less to work with when paying your creditors. A 10 percent discount for every week during the sale should be sufficient.
