Under normal circumstances, it may take many months to wind up a business process. You need to frame and follow a proper closing plan, which can help you guard your assets, credit scores, and the reputation and goodwill of yourself, partners, consigners, resellers, and lenders. Unfortunately, the unforeseen economic downtrend caused by the COVID-19 pandemic, many businesses had to close down in a hurry. Even in such a case, it is not wise to roll down the shutters without planning and executing a shutdown with only as minimal adversities as possible. Here are some ideal practices to follow for a hassle-free temporary or permanent shut down.
Business shut-down checklist by Eric J Dalius
- Collect the outstanding AR – Collection of all your exceptional receivables must be done ideally before announcing your plans for shut down. It may be difficult during an economic crisis, but you may attempt and collect as much as possible.
- Sell off your inventory – You may run a going-out-of-business sale to dispose of your list. You may think of alternative options, too as donating your inventory for charity if you can afford it. Such donations are deductibles in terms of corporate or personal tax returns.
- Notify the creditors – Once you decide to shut down, you must intimate your lenders, suppliers, utilities, and service providers. Doing it the right way will help limit the timeframe creditors may ask for the debts.
- Notify customers and fulfill any contractual obligations left out – You have to return any payments or deposits by the customers in terms of goods or services not delivered.
- Terminate any commercial lease – Give the commercial space landlord adequate notice as stated in the lease agreement. Due to the pandemic situation and crisis associated with it, many landlords agree to defer the final payment to cease the lease contracts.
- Notify the employees and pay them dues – Most importantly, you need to consider your employees and give them adequate notice. Clear their last paychecks and, if affordable, offer them a small bonus and a token of appreciation for the efforts they put in for you. SBA has introduced some COVID-related paycheck protection loans too, which you can try to avail if needed.
- Protect your personal liabilities – Pay off the money you owe to the landlord, suppliers, bank, utilities, and other service providers. Once cleared, ask for clearance and no-due letters. Due to the pandemic, many creditors may accept payment less than the full amount owed by you.
Here are some more points to be added to your checklist as suggested by Eric J Dalius, based on your specific use cases of business shut down.
- Make final state and federal payroll deposits.
- Submit final sales tax returns and clearance of dues up to the closure date.
- Cancel all your business credit cards or other subscriptions.
- Close business bank and other accounts.
- Apply for cancelation of licenses and permits, if any, including the seller’s permit, business license, usage of power and connectivity, etc.
Taking the assistance of a business attorney who is well versed with business closings can also be considered if you are confused with things like settlement of dues, whether to file bankruptcy and so on.