How do you shut a business down?
When a business fails, what should the owner do? What steps should they perform, to ensure all concerns are handled in an acceptable timeframe? There are plenty of guides on starting up, not so many on what to do when a business fails to ensure legal, financial, etc. concerns are addressed.
Close your books, notify your local government by filing your taxes. Have your accountant and or attorney help you with the completed closing to ensure you don't owe any future taxes or penalties for not filing properly also to ensure you don't pay something you aren't responsible for. Most businesses close due to lack of capital, don't make promises to pay or make things right with vendors or employees for that matter. Sounds bad but you have to make care of you.
Every business passes through four stages: Introduction, Growth, Maturity, and Decline.
So the question is relevant to every business or some part of every business sooner or later. Gramophone records, audio cassettes, typewriters, valve radios, and more like these have become stories of the past. These however have taken new forms, but business related to the previous had to be closed. Another times, government policies may impose a shut down for example ban on DDT. Another times, the business may have turned into a white elephant. Whatever be the reason, every entrepreneur must accept such situation as a test of entrepreneurship.
Now, to successfully face this adversary:
- List out your all your stakeholders
- List options available to strengthen the present business
- In case no such option available, list options of another business
- Safe other options would be where your procurement line, production line, and distribution lines remain somewhat the same. You have put in great efforts in building those during the Introductory Stage. You would have better chances of reaching Growth Stage of second business faster.
- Look from stakeholders point of view.
- The change would require an effective Change Management.
- List out all statutory requirements and modalities of meeting those.
- Work out your plans for Change in great details before announcing the Change.
- In execution of change just remember that your stakeholders have their stakeholders including their families. Be empathetic in your approach. Your empathy will pay you dividends in the next business.
Finally, remember throughout, you are closing a business, not your entrepreneurship.
Dr. DS Narban
Ph.D. (Psychology), MBA
First question to you is: what is the financial condition of the business.
Are there outstanding debts that will not be able to be paid?
Have you personally guaranteed payment on any accounts (you likely have)?
Some things like taxes you are personally responsible for regardless of whether you explitly agreed to pay them.
Once all of that has been resolved it is pretty simple. Notify vendors (especially landlords, insurance companies, utilities etc.) you are closing up. Notify taxing and other regulatory bodies that you are closing.
Need to make sure you accountant checks the final return box on tax returns and then file articles of dissolution with your secretary of state.
The steps are really pretty simple, but it will require a lot of "legwork" on your part.
I think the advice given completes the question. I realize this may not be your business but advice you are giving another. Feel free to contact me directly, but to oversimplify a summary - close all open agreements in writing, calls are courteous, letters are legal. Consider the real posibility that you and the company are the same entity if you did not fully keep a legal seperation. Depending on the complexity, an attorney can guide you regarding your personal liability and bankrupcy.
First define what you mean the "Business Fails" Many business owners miss going to see a "Trustee-in Bankruptcy" they might buy you some time with some suggestions. Before shutting down is there any "key" customers who might have a vested interest in taking over one of your lines.When all else fails go to see a Trustee and they will walk you through a process that might buy you time. Finally see if you have a key shareholders or others with vested interests to help you.
Excellent comments below as a practical matter, However I would add the most critical is having a "hard" meeting with your employees even if they are family members. Pay them the respect of direct communication, before you actually lock the doors. I have had two clients who acted on this recommendation who's employees asked to take over the "failing" business. Often times when we are in a quandary and cannot see solutions that may be right in front of us.
This requires different steps to protect you and them but it is worth the time to have this difficult conversation with your employees. DON'T ASSUME that it is over until you've explored all options. Our pride, too often, is the greatest obstacle to a potential built in solution.
If a business shuts down, even though you may be under total stress, keep your clients in mind. You never know if you may go into another venture, you want a good response.
I would first see if you have a relationship with some one who can take over your accounts, that you trust.
Get that in place, then send a letter, with backup letters and a time zone on when this will take place.
I would say, that you can refer your clients to XYZ so they will not be left hanging and looking for a new warehouse or consultant, ect.
I would then make phone calls, to all or ask them to call you in the letter with any questions. I would give a short on what and why, with out putting your life story out.
You want your clients to know that you appreciated their business and with respect you offer then a place to go or find their own way.
As in some of the other advice, you will need to speak with your accountant and Atty. if your a larger corporation, clear your books, ect. What ever you do do not feel like a failure, when one door closes a window will open.
Depending on how the business is failing and there are a multitude of reasons.
It always astounds me that some business owners would rather close a business down than sell it for something. Some businesses just are worth nothing, for a multitude of reasons. But if there is some value there, I would have thought it best to get say $10,000 than nothing.
A good business broker will be able to advise based on general experience and current knowledge.
Some business models however, are just unsaleable and this should have been recognised when the business was in concept stage.
So you've decided to close down your business -- maybe you're not making it financially, you don't have the time or will to manage it anymore, or you're moving on to the next "big thing." Whatever your reasons for closing your business, there are a few legal tasks you need to undertake to protect yourself, your credit, and your reputation in the community, especially if you ever want to go into business again. Here are the main steps you'll need to take to shut your business down legally and minimize the risk to your personal assets:
Vote to close the business
Dissolve your business with the government
Cancel permits, licenses, and fictious business names
Pay your taxes and debts
Notify your creditors, employees, and customers
The moment you realize your Business is making more loses than profit you need to come up with a plan depending on the your investment on the Business,if its shareholding ,you can start selling off and venturing into other Business but when owned fully,you can embark on cost reduction or closing out departments which initially were very much important but are now not cost friendly to the company.
Hey Ethan. Are you an LLC or an S Corp or a Sole Proprietor? How long have you been in business? What State is your business located in? Do you have employees? Do you have company insurance? Do you have any kind of retirement account set up for them? Do you have business equity despite your thoughts of failure? IS there a way to regroup your business to make it profitable before you close it down? Do you have a CPA? Do you have a Tax Attorney? And do you have a business lawyer? If you are an LLC or an S Corp, is it Domestically filed in the state in which you work or is it Foreign Filed? IF so, what is the state of origin? What is the type of business that you run? Do you have an office or do you work out of your home with a home office? Do you have your business plan? In your business plan did you have an exit strategy developed? If not, what is your idea of how you would like to see your exit be? Do you have a lot of business debt? Have you incurred a lot of personal debt that belongs to the business? What are the catalysts you see that you need to over come to have a successful business close debt free, if that is possible? Please feel free to PM me if you have any questions regarding the plethora of questions I have asked of you to think about and to consider.
Steps are simple: (1) advise remaining customers, (2) file final tax returns, and (3) have your accountant advise local, state, and federal authorities that you have gone out of business.
Pay all employees due wages, pay all vendors, close the doors. It's that easy.
As long as you have not signed for the company personally, pay off all your taxes especially the employers part of payroll tax and be open and honest with everyone...
Look also to se if you can ruin it as a Debtor in Possession....
If you signed personally be open and honest with everyone, and be prepared to lose some of your assets....
You can also go Chapter 11 and reorganize.... Make sure this is your last option and you will not have any repercussions personally if you can help it.
unless it's a one person business, or even then, sell it. It's worth something to someone. Just because it failed for you, doesn't mean it's not a good fit for a department of another firm in your industry. You can always pay all your payables and stop taking new orders after you have filled all you have but it's really a waste. Your clients might want to buy their supplier, etc. Vertical Integration, etc.
I typically do the following:
1) Ensure a full financial picture of both cashflow and P&L are at hand
2) Begin with the end goal for all stakeholders in mind
3) Create a wellness plan or wind down plan based on the goals
4) Execute your plan
Alternate steps can be found at these sites:
Hope this helps.
Ah, we all hate to have the answer to this one.
I have shut down more than one business. One was a business unit within American Airline's SABRE back in 1988. It began with American's CEO Bob Crandall abruptly making the decision and announcing the shutdown of the division in the space of about 30 seconds at a senior staff meeting with about 40 of his direct reports and their direct reports there. I almost didn't know what hit me and he had already moved on to the next agenda item. A few minutes later, I went into action mode, writing a list of things to do to shut the business down - terminating customer and vendor agreements, placing our nearly 100 employees in other jobs, etc. The executive that I was sitting next to wrote on his notepad - CALM DOWN. On my notepad, I wrote BUT IT WAS 3 YEARS OF MY LIFE. And he drew an arrow between the word WAS and the number 3. JUST. So the first thing to do (before you start your list) is breathe. It is ok to fail. You can now check it off your list in fact, as every successful entrepreneur has at least one failure under their belt. After the meeting Mr. Crandall who is known to be gruff and somewhat heartless (not really for those that know him), came up to me and said "I just shut your business down. If we had thought you were a failure, we would have shut you down". Whew. Nuf said.
My other story is told here. https://medium.com/@chickefitz/latest
Closing a business down isn't easy as it is tough depending how much it had failed. I think, the key point you must consider first before closing the doors shut, you must be mindful if the business really has no chance to stand again as there will surely be some suggestion from a colleague and some business experts if you console one, that might help you to regain track.
It certainly depends on the type business and just as you know when opening day is, you should also know when closing day is. So you should have time to plan, at least thirty days. What type of business?
Certainly from what I see in the market as a Business Broker, the first step is to come and see someone like me, to see what we can do/salvage. There are ways and means to create value in the short-term if the owner has the appetite. If they do not, then the next step is to go to the accountant and they usually look after the process from there.