If the process of starting a small business is typically characterized by excitement and anticipation, ending one is almost always filled with mixed emotions. The owner may be ready to retire or move on to another opportunity, the enterprise didn’t meet expectations, or the market for products and services is not what it once was.
Regardless of the reason, ending a small business requires careful planning to effect a smooth transition, ensure you receive maximum value for your investment, and avoid subsequent legal and tax issues.
Should you choose to sell your small business, start preparing for the sale at least a year in advance to update all records, conduct a thorough inventory of your assets, and resolve any pending legal or business issues. You will also need to have your business fully appraised by a qualified expert to establish its value and set an asking price.
Document what will convey with the sale of the business in the sales agreement. In addition to physical assets and inventory, the sales agreement may also include customer lists, intellectual property, and goodwill, as well as any non-competition covenants, warranties, and the buyer’s access to business information. An attorney should be involved to help prepare the sales agreement.
You’ll also need to decide whether to attempt to sell the business on your own, or work with a broker. Several online services are available for listing your business, including BizQuest and Business Smart. If your time and expertise are limited, a broker’s fees and commission may be worth the investment.
Also consider the “what if’s” of potential purchase offers, from long-term payment terms to staying on as a consultant for a specific period of time. If your post-sale plans are flexible, you may find that maintaining a defined, yet limited role helps foster a more seamless transition, especially among customers.
The process of closing a small business entirely varies depending on its structure. Limited liability companies and corporations must formally dissolve per their state’s regulations, and address all outstanding tax issues. Though paperwork may not be required of general partnerships and sole proprietors, notifying appropriate government agencies and creditors is a good idea. A small business attorney can assist with whatever filings are required.
Other business closure steps include canceling all licenses, permits, insurance, and registered business names. State laws will dictate when employees are to receive their final paychecks and, if required, payment for unused leave. Also inform federal and state tax agencies that you are closing and will no longer file unemployment returns and the employer’s quarterly tax form.
The U.S. Internal Revenue Service has a checklist of tax documents you may need to file when you close a business. Income tax returns for the year in which your business closes should indicate that the document is a final return. Contact IRS to close your employer identification number account. Also note that many state agencies may require additional filings for sales tax.