The sad reality of our current pandemic economy is that many businesses are closing their doors and winding up their affairs.
Small business owners may see the need to go through personal bankruptcy to relieve themselves of unpaid business loan balances that were personally guaranteed, unless those lenders were able to forgive the loans or sell off assets to satisfy the debts.
Other small business owners with little to no debt have had the ability to just lock the doors for the last time and wind up their business with minimal effort.
However it happens, the closure of a business is also the ending of a chapter in Life. Many entrepreneurs will reassess and change direction entirely. And yet some will dream another dream, to try again after the current crisis passes.
As a business owner weighing your choices,
It’s important to realize no decision is still a decision.
We can assist business owners as they are
Attempting to determine if their business model is still viable,
Planning to get the other side of this current crisis,
Figuring out which costs can be included in the final year of business—even if they occur in the year after,
Calculating their losses,
Wondering how to report business debts that were cancelled and pay tax on them if necessary,
Closing the business with the State and IRS,
Filing a final tax return for the business,
Distributing any left-over funds.
If an owner has realized their business is no longer viable, there are several steps to winding up the business such as:
Collect any outstanding amounts from customers or clients
Sell any remaining inventory
Return any customer deposits for work that will not be completed or product that will not be delivered
Notify lenders, suppliers, service providers, utilities, and any other creditors that the business will be closing (this should be done in writing and the date recorded, which will come into play if there is a dispute later)
Negotiate an end to all leases, such as with equipment or office leases. Review the lease for the required final terms.
Announce the closure of the business to all employees and give them as much notice as possible. Colorado requires that the final paycheck be provided to each employee before they leave the premises on their last day of work. (Don’t lay off employees during the 8-week period after obtaining a PPP loan, or the entire amount may have to be repaid.)
Sell or liquidate all other assets
Pay all remaining bills or invoices, including final IRS and State payroll taxes, sales and use taxes, and outstanding personal property taxes. (If the business must pick and choose what gets paid due to limited funds, pay employer taxes FIRST, then sales and use taxes SECOND, then personal property taxes, followed by all other bills or invoices.)
File all final employment reports, including W2’s after year-end
Close all employer tax accounts and sales tax accounts. Your accountant may assist with this step.
Cancel all subscriptions, lines of credit, and credit cards
Inform yourself of the rules of Bulk Sales Laws, which don’t apply to many states (it was repealed in Colorado in 1991) but are active in states like California or New York. If going through bankruptcy, your bankruptcy attorney should be informed of any sales of assets that may be a bulk sale.
Cancel all permits and licenses
File the final business tax returns, complete with Form 4797, final K-1’s, or Schedule D, which your accountant will be able to complete accordingly
Distribute any remaining assets in a manner consistent with the business agreements
Pay remaining legal and accounting invoices for professional fees related to wrapping up the business
Pay any taxes that are due, according to your accountant’s instructions
Close all bank accounts and distribute remaining funds according to your accountant’s instructions and the business agreements
Dissolve the corporation, partnership, or LLC with the State
Be kind to yourself—you’ve just gone through a big life change but are certainly not going through it alone!
The checklist above may not be 100% complete for your business, but highlights many of the biggest priorities.
In an economic downturn, there are opportunities to retool, reinvent, and be reborn. Challenges are the impetus for change, enabling us to shed things that are no longer useful. Sometimes those changes lead to an entirely new venture. Whether you’re a business owner contemplating the end of a business or the beginning of something new, we are a great fit for your team. We work with businesses owners all over the U.S. Make an appointment or give us a call today!
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