Everything You Need to Consider Before Closing Your Business

At the start of 2020, New Jersey was home to close to 900,000 small businesses. It is difficult to say how many remain open, but is certain that many have permanently closed, or are on the verge of dissolution. At this juncture, business owners need to ask themselves if a full dissolution is even necessary. The economy will eventually recover. In the meantime, they may wish to close temporarily and consider the following:

• Cut expenses by reducing staff, cutting the advertising budget and cancelling supply orders. You will also save on utilities by shuttering the doors.
• Re-negotiate contracts with vendors. Seek new terms, reduced payments or release from the contract all together.
• Let customers know via your web site, social media and any online business directory listings.

If business owners decide to close, they will need to liquidate all business assets and legally dissolve the company. For example, LLCs and limited partnerships will need to consult their operating agreements. Corporations need approval from a board of directors. No matter what, an agreement to end the business needs to be formally documented, if not otherwise spelled out, but first:

• Give employees notice and issue their final paycheck.
• Collect unpaid balances from existing customers.
• Review current contracts and handle outstanding obligations.
• Reach out to current creditors and settle all debts.
• Close all bank accounts and credit cards.

Now the dissolution paperwork needs to be filed with the state containing the reason for dissolution and a signature or statement of approval by the owners or shareholders. In some states, a tax clearance from the state tax agency is needed to verify that all tax debt has been paid.

Speaking of taxes, final tax returns will need to be filed and do not forget to file final payroll tax returns. Issue final W-2s to employees and 1099-MISC forms to independent contractors. Once all debts and taxes are paid in full, distribute assets among the owners.

The lives of small business owners have been drastically disrupted, however there is a silver lining. The very grit and determination needed to start a business will be sorely needed when it comes time to rebuild the economy. Until then, it is a good time to follow the advice of the U.S. Marines: Adapt, improvise and overcome!