How To Close A Business
Every year, more small businesses close than open. If you find yourself in the position to close your small business, read our step-by-step guide to help.
In this article, we’re going to go over how to close a business. It isn’t a topic anyone wants to cover, but it’s important to understand the process if it happens to you.
With the COVID-19 pandemic shutdowns and economic recession, small businesses in every industry are facing this reality: the business must close.
Keep reading to learn what you need to do to make sure that closing your business isn’t any worse on you, your employees, your customers, and your finances than it needs to be.
Table of Contents
- Where Do I Even Start?
- Give Notice That Your Business Is Closing
- Close Up Your Physical & Digital Shop
- Handle Your Business’ Outstanding Financials
- Monitor & Keep Records Of Your Business
- Additional Resources For Closing Your Business
- What If I Want To Sell?
- Closing Down Your Business Isn’t Easy, But Doing It Correctly Is Important
- How To Close A Business: FAQs
Where Do I Even Start?
Closing down a business isn’t just locking the doors, physical or digital, selling off your equipment, and cutting your losses.
It involves taking legal and administrative steps that may vary depending on the nature of your business and the particular local, state, and federal laws that apply in your situation.
It’s a lot to handle — and it comes at a time when you’re unlikely to be prepared for the emotional toll of it all. However, we’re here to help.
The Essential Do’s & Don’ts Of Closing Down A Business
Closing your business is never an easy thing to do. Here’s a quick rundown of what you should and shouldn’t do. Don’t worry; we’ll go into more detail later.
- Do: Communicate the situation with employees and customers
- Do: Make arrangements with any service providers
- Do: Notify the relevant government agencies as required by law
- Do: Talk to a lawyer and/or an accountant
- Do: Make a plan of action
As for the don’ts:
- Don’t: Panic (We know, easier said than done, right?)
- Don’t: Just lock up and disappear
- Don’t: Ignore any bills or creditors
Give Notice That Your Business Is Closing
Emotionally, this may be the hardest part of the whole process. Nonetheless, those affected by your business’ closure deserve nothing less than your full honesty.
If you have partners and/or investors, you’ll need to get everyone on the same page first, but if you run your business alone, the decision will be a little less complicated.
Close Up Your Physical & Digital Shop
As your business approaches its final operational day, you’ll need to do what you can to wrap things up. Depending on the stock and supplies you’ll have on hand, you should consider measures such as a clearance sale to clear your remaining inventory.
Handle Your Business’ Outstanding Financials
As you close up shop, you’ll have to deal with any outstanding financial business. You may have several such concerns, which is why the order of resolution is crucial.
Monitor & Keep Records Of Your Business
Even after your business shutdown is finalized, you may still have business-related matters to deal with, unfortunately.
A number of laws may require you to keep your financial records and tax filings for a certain length of time. Consult a lawyer or CPA in your state of operation if you’re unsure what you need to keep and for how long.
You should also monitor your business bank account for any suspicious deductions from companies you’ve worked with in the past. Unfortunately, many business owners find themselves still being charged by service providers 1-2 years after closing, so you’ll want to nip this in the bud if it happens to you.
Additional Resources For Closing Your Business
- The IRS provides an online guide to closing your business and the steps you need to take to do so.
- Likewise, the SBA offers a published guide to closing your business.
- FindLaw offers a guide to closing down your business with a particular focus on the legalities involved.
- The legal site Nolo.com offers this 20-step checklist for closing your business.
What If I Want To Sell?
If you don’t want to see your business disappear, you can decide to sell it instead. Selling is another complicated and emotional process you may not have the mental bandwidth for, but it is another way to try and recoup some of the money you’ve spent building your business.
Learn more about selling your business in our complete guide to selling your business.
Closing Down Your Business Isn’t Easy, But Doing It Correctly Is Important
You may not feel highly motivated to do your due diligence, which is entirely understandable. Nonetheless, if you don’t want to find your business running afoul of employment law (or if you don’t want creditors harassing you and asking for money at a time when you’re least equipped to deal with it) you’ll want to make a good-faith effort to close down your business the right way.
Again, the more complex your business, the greater the likelihood is that you’ll need to enlist the help of an attorney and/or a CPA.
Looking for more help? Check out these resources from Merchant Maverick:
- How to avoid defaulting on a business loan
- Small business guide to filing for bankruptcy
- Guide to business interruption insurance