How to Close a Business: A Step by Step Guide

You’ve gone over your books again and again. You’ve managed your cash flow and taken out loans. But there’s no getting around it: your business has failed. Bummer.

Now comes the painful process of closing up shop. Fortunately, the closure process doesn’t have to be complicated. By following a few simple steps, you can close your business and settle your books. Here’s how it’s done.

Here’s What We’ll Cover:

Make the Decision to Close

Notify Your Creditors

Notify State Agencies

Notify Your Employees

Comply With IRS Requirements

Key Takeaways

Make the Decision to Close

Making the decision to close works differently depending on the business type. Sole proprietors can close on their own, without any input. You’re the business owner, so you decide.

Partnerships, on the other hand, will require the formal agreement of all parties. Rules for corporations with multiple stakeholders are even more complex. Consult your articles of organization, and make sure to document everything in writing.

Notify Your Creditors

Before you close, you’ll need to settle any outstanding debts. To do this, your business must send a written notice to all creditors that the business is closing. This notice must include contact information, and a deadline to submit any claims.

In some states, you can do this after filing articles of dissolution. In others, you must notify your creditors first. Once you’ve sent out your notice, your creditors will have between 90 and 180 days to submit a claim. Again, the exact time period varies by state.

In many states, unknown creditors can file a claim against your business assets even after you’ve closed. To prevent this, you can publish a notice in a regional newspaper stating that your business is closing. This notice should designate a specific time period for claims, and provide a mailing address.

Again, there’s some variation in state laws. Creditors may have anywhere from two to five years to file a claim, regardless of anything in your notice.

Notify State Agencies

Filing articles of dissolution does not automatically complete the process of closing your business. You’ll also need to contact various state agencies and notify them separately. Exact requirements will vary by state. That said, there are a few things you’ll normally need to have cancelled.

To begin with, you’ll need to turn in your business license. You’ll also need to cancel permits and licenses owned by your company. Vehicle and other registrations will need to be canceled. And make sure to cancel your business name in order to prevent it from being misused.

Notify Your Employees

When and how to tell your employees is a more difficult choice. In some states, there are specific requirements for notifying employees in advance, so make sure to check your state laws.

That said, telling your employees will become inevitable sooner or later. For instance, your exit strategy might involve closing certain branches. Or you may post about your closure on company social media accounts. Regardless, people will eventually find out.

The most important thing to remember is that employees must be paid for all their work, up to the end of the last day of business. You’ll also want to have cash on hand for out-of-pocket expenses.

Finally, have a plan in place for employees to return outstanding company property. If you’ve provided computers, mobile devices, or company cars, you’re going to want those back. If nothing else, you can sell them to offset business debts.

Comply With IRS Requirements

Even if you don’t owe any tax, it’s important to file a final tax return. This will allow you to meet financial obligations such as income or sales tax that you weren’t aware of. Which form to use will depend on what kind of business entity you are.

You’ve settled your business liability with the federal government. Now it’s time to cancel your employer identification number (EIN). Your EIN is a unique number assigned to your business that serves as a taxpayer identifier. It’s similar to a Social Security number, but for companies.

To cancel your EIN, you must send a written request to the IRS. This must include the name, business address, and the reason for business closure. It must also include the EIN, and you should include your EIN certificate if you still have it.

Even after you cancel your EIN, you should still hold on to your business records and tax returns for seven years. This will ensure that you’re compliant in the event of an audit. It can also help shield you from any unexpected business liability.

Key Takeaways

Businesses close every day, for many reasons. Don’t let it keep you from trying again in the future. If nothing else, you’ve learned a lot from the experience. Take that knowledge, and use it to your advantage in your next venture!

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