5 Legal Steps to Take to Shutter Your Business
It can be a hard decision to close up shop, but make sure you do it properly if it comes down to it.
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It is never easy to turn away from something you've poured so much time, effort and money into. However, knowing when it is time to throw in the towel is one of the key marks of a great entrepreneur.
One failed venture hardly defines your career. Silicon Valley has shown us that a failed company is typically just another line on a great entrepreneur's resume.
How do you know when to call it quits and try something different? Here are the key signs:
You need to work too hard.
Starting a business requires long nights and lots of grit. However, working 24/7 with no end in sight is not sustainable. Simply put, you will burn out if you can never take time off and step away from the business. Your business' road map should enable you to take a vacation or be sick in the not-so-distant future. If not, you need to change gears, either by exiting the business or hiring help.
There's no longer a need for your product or services.
Sometimes the market conditions that existed when you launched your business are no longer present a few years later. If sales and customer demand have been consistently dropping over time, you should objectively assess the current market trends to determine if there is still a need for your business. If not, you can either pivot your existing business or start fresh with something new.
There's no growth.
You can't expect your new business to be an overnight success. It takes time to build a product, develop your brand, attract customers and create market awareness. While there's no specific timeline that applies to every business model and industry, the fundamental goal of any business is to make a profit. If you have reached the point where your product/service is mature and you still see stagnant or declining growth, it may be time to close shop and move on to something new.
You stopped having fun.
The most successful entrepreneurs truly love what they are doing. Life is too short to spend your time on something that doesn't spark that inner fire. If running your business is weighing you down, it is time to take a hard look at moving on.
How to shut down a business.
When you are ready to close shop, you must follow several legal steps to close down your business. The goal is to cut all ties as quickly and smoothly as possible. After all, you don't want the IRS to contact you a year later for a missing tax return or have to pay the state penalties for failing to pay your annual fees.
1. File dissolution papers with the state, if you have been operating the business as a corporation, LLC or partnership. Otherwise, you will still be expected to file an annual report for the company.
2. Pay off any debts. In most cases, you'll need to settle your business debts before you can distribute any money or assets to the members. Consult with an attorney if you can't pay off your loans and debts.
3. Close your business federal and tax accounts. You need to file your final tax return (there's a check box to indicate that it will be your final return). In addition, you will need to contact the IRS to close your employer identification number (EIN).
4. When closing a business, you will need to cancel your seller's permit or any other licenses and permits with your county or town. Be proactive about cancelling these right away, as you can still be assessed fees if the local board doesn't know your business is no longer operating.
5. Notify your network. No doubt you have already figured out how to ramp down your company with clients and customers, but you should also take the same care with any contractors, vendors and suppliers you have worked with. After all, these are the people you'll want to join you on your next project.
If you have been considering closing your business, take some time and assess the situation, then make sure to close all the legal loose ends. Once you have dissolved your business with your state, county and the IRS, don't look back. You're ready to focus your attention on the next big adventure.
Related: How to Properly Close Your Business