How to Properly Close Your Business
Much like discussing funeral arrangements while you're still young and healthy, the topic of closing your business isn't something many entrepreneurs want to contemplate.
But the numbers aren't in the favor of small-business owners, the U.S. Small Business Administration reported that an estimated 552,600 new companies opened for business in 2009, while 660,900 businesses closed up shop. Things look even worse if you're in the food service sector where the National Restaurant Association says 30 percent of new restaurants fail in the first year, with another 30 percent failing within the next two years.
There's just no skirting the issue that for whatever reasons, sometimes companies must close up shop. It could be a lack of funding, bad business decisions, an economic crisis -- or a combination of all of these.
Adding to financial woes, many doomed businesses fail to properly terminate their corporation or LLC, leading to a raft of unexpected charges associated with the dissolution of the company. There's a right way and a wrong way to close up a business, according to Deborah Sweeney, CEO of MyCorporation.com. Here are her suggestions on properly closing a business:
1. File your final tax return.
When closing a business, you must file an annual tax return for the last year in business – even if you were in business for only a portion of that year. All corporation and LLC tax return documents, including Schedule K-1s, have a denotation that this is the “final tax return.” Check that box, and then contact the IRS to close your employer identification number (EIN) account.
2. File your final employment tax return.
Tax related matters also include filing a final employment tax return if you have (or had) employees. And don't forget to make the final federal tax deposits for your employment tax return as well.
Related: 75 Items You May Be Able to Deduct from Your Taxes
3. Deal with dissolution documents.
Unless you formally dissolve your business, the government will have it listed as an ongoing entity, accruing taxes and fees. Filing dissolution papers is especially important if you have partners or other owners in the business, as it prevents future confusion about ownership and liability.
4. Take stock of what you have and sell it.
Inventory and sell any assets that the business may have remaining, and be sure to report all business assets using IRS Form 8594 (the Asset Acquisition Statement). You might be able to recover some of your business losses by selling your inventory and equipment.
5. Cancel licenses, permits and insurance policies.
If you have city, town, county, state, or federal licenses for your business, contact the issuing authorities to cancel them. Also, be sure to contact your insurance broker to cancel business liability and workman's compensation insurance, and notify your employee-based health care provider about the closure.