If you decide to close or sell your business, you are certainly not alone. According to the Small Business Association (SBA), only about 50% of companies in the U.S. survive their first five years in operation.
The factors leading to the closure of a business could include poor planning, a lack of capital, tough competition, changes to the industry or market, lower-than-expected profits, economic recessions, or unforeseen events such as the COVID-19 pandemic.
While closing a business is common, the process can be complicated. If you wait too long to shut down operations, there could be complex financial and legal considerations, such as bankruptcy or collection actions from vendors. By taking the proper steps at the right time, you can move on to your next endeavor without lingering issues holding you back.
Collect and Close on All Accounts
The first thing to do before closing a business is to collect and close all accounts. This includes any outstanding balances that you owe and incoming invoices and payments. Some customers could be less likely to pay their outstanding invoices once you have closed. If someone has a long-overdue invoice, you can offer a discount as an incentive to pay quickly.
Once you have received and paid your bills, you can move to close your business bank account and transfer any remaining funds to a new business or personal account.
Notify Invested Parties
Once you’ve started collecting on remaining accounts, you can start the process of notifying people who are involved in your business operations. These people can range from employees and investors to any other stakeholders. These announcements should be made as soon as possible, so investors don’t hear from someone outside of the company.
Depending on the situation, you may need to abide by regulations, such as making a final payment to employees and letting them know about the closure in writing. Most employment contracts will also require you to notify workers about closure before termination.
Then, you can move on to contractors, vendors, retailers, marketing affiliates, and any others who regularly worked with your business. A closing announcement should include the time and date when operations will cease. In addition to thanking recipients and customers for their participation in your business operations, you can include information about any outstanding payments due or owed. By being proactive with this information, you can avoid calls about final payments.
Terminate Any Lease Agreements
If you have a long-term lease on a factory, office space, or retail location, you may be liable for any rent payment on the property for the remainder of the contract. Because these payments might be impossible after you cease operations, you will need to terminate the lease prematurely.
One solution to this issue is to publicize the available space to get a new tenant for the landlord. By providing this option to the landlord, you can help mitigate their loss so they might be more likely to let you out of the lease agreement.
If you cannot find a new tenant, you can attempt to negotiate a lease termination to pay several months’ rent up-front. Many landlords prefer a negotiated lease termination solution to avoid lengthy bankruptcy processes that could require them to wait for months for any compensation.
Sell Remaining Inventory
After you stop ordering new inventory from suppliers, you need to get rid of any remaining stock. On a practical level, selling the remaining inventory can make it easier to clean out the space your business used for operations. On a financial level, liquidating stock can make it easier to meet the monetary obligations associated with closing your business.
If you would like to handle the process quickly, you can work through a third-party liquidator. However, you can avoid fees associated with this option by first offering items for sale at a discount through your normal operations. You can gradually increase the percentage of your discount rates until everything sells out. If any inventory remains after you offer the lowest possible price, you can consider a liquidator.
Liquidate Your Business Assets
In addition to selling inventory, you can liquidate other assets, including vehicles, property, and equipment. When you liquidate assets, you typically distribute the proceeds to shareholders, employees, creditors, or cover bills from vendors.
You might even consider offering specialized equipment to competitors. Online auction platforms or in-person auctions can provide another option for assets that do not sell quickly.
Some liquidation services also offer to sell items on your behalf, though they take a fee or percentage of the profits for doing so. Liquidation can be necessary to avoid any costs associated with retaining the assets. For example, you may have to pay taxes and registration on vehicles or pay to dispose of unused equipment or materials.
Pay Off Any Outstanding Debts (If Possible)
Before you officially close your business, you should make every effort to pay off any outstanding debts. Doing so will allow you to put the business behind you. Vendors or lenders will often take you to court or go through a collections agency to get their owed money.
In some cases, you may be able to negotiate a partial payment or a payment plan to settle the debts. Creditors may prefer this option in comparison to bankruptcy or legal proceedings. However, bankruptcy is an option for a fresh financial start if you are unable to pay your debts. This process will damage your credit score, but creditors will typically void their collection efforts after you start the process.
Dissolve Your LLC
If you run a limited liability company (LLC), you must dissolve it when closing the business. The dissolution requires the approval of all partners in the LLC.
After agreeing to this decision, you must settle debts and distribute any remaining assets or revenue to stakeholders and partners.
Finally, you need to notify the relevant state agency where you registered your company. This is typically a Department of Commerce or Secretary of State’s office. Most states have forms or documents that you and your partners must sign and file. Once you send these dissolution papers, the company is officially deregistered and no longer a legal or business entity.
When you dissolve your LLC, you also need to consider the ownership of any trademarked or patented property.
Sell Your Trademark
When a business collapses, the trademark becomes unassigned and remains on the trademark register. Unlike copyrights and patents, trademarks do not expire after a set period. The legal protections remain active as long as the owner continues to use the trademark.
Businesses can choose to retain or sell their trademarks as part of the closure process. When closing your business, you can sell your trademark to a legal entity or any other individual through the process of trademark assignment.
Many platforms today offer registered US trademarks for sale online, which could expedite your closing process. If you choose this route, you can quickly connect with and sell to people who are seeking trademarks.
On the other hand, there can be plenty of value in keeping your trademark for future use to explore licensing opportunities. By choosing this option, you can retain ownership but sell the right to use the brand to other businesses.