Many modern businesses need to close, and they do so for a broad variety of reasons. Maybe a business is no longer profitable, or perhaps its owner intends to retire. Regardless of the reason for closing or selling a business, there are specific processes and guidelines that must be adhered to in order to do so appropriately and lawfully. The content below is intended to give readers an overview of the steps involved in selling or otherwise closing a business.
Selling a Business
The decision to sell a business is not always one that can be made at the most opportune time. That being said, however, when possible, it is generally in the business owner’s best interests to wait to try to sell a company until market conditions are most favorable. Just as housing markets run hot and cold, business markets do, too. Once a timeline for selling is established, the next major step is to try to determine the value of the business. There are three primary methods used for business valuation these days: the market-based approach, the asset-based approach and the income-based approach. Each has its own benefits and drawbacks. The market-based approach involves finding other comparable businesses currently up for sale and recently sold, and determining a business’s value based on the sale price of those comparable listings. The asset-based approach involves, as the name suggests, assessing the value of various business assets and then setting a price based on the market value of those assets. Some professionals and owners tend to avoid this method, however, mainly because it fails to take into account criteria such as projected future earnings or business growth, and it therefore may ultimately prove less accurate. The third and final common valuation method is the income-based approach, which relies on how much of a profit a company owner makes, given how much money they also owe. Once a selling price has been determined, it is important to be patient throughout the sales process. Finding a business buyer is not always easy or quick. It may prove fruitful to begin by looking at similar businesses within a marketplace, and then making sure those business’s owners are aware of an intent to sell. Even if a new buyer is not found through this method, others in the same industry may be able to recommend additional potential buyers.
How to Close a Business
There is far more to closing a business than simply packing up and closing up shop. Often, there are deadlines and regulations that must be adhered to when sheltering a business, and owners may also be required to notify certain governing bodies or organizations at the local, state or federal levels. While the exact process involved in sheltering a company depends on both the nature of the business and the business’s legal structure (if it is classified as an LLC, corporation, etc.), most businesses must take similar steps when closing their doors. Generally, the first step is to officially vote to dissolve a company. Next, it is wise to establish a timetable for the closure, create a list of all assets and then issue an announcement to anyone that might be affected by it. After all existing contracts and outstanding obligations have been met, it is time to shutter the business, get rid of business assets, pay off any remaining debts and submit final taxes on behalf of the company. Then, it is time to file dissolution paperwork at the state level and, if necessary, the federal level, and finally, close the company bank account. While closing the bank account is an important step in the process, former business owners are advised to hold on to business records for a minimum of five years after the business closes in the event they need to refer to them for any number of reasons. Once the proper government organizations have been notified of the business closure, it is time to notify creditors, lenders, insurers and virtually anyone else with whom business was conducted about the closing. It’s also time to cancel any company licenses or active permits to avoid them being misused or renewed. Business owners who foresee an upcoming closing can also take certain steps to help streamline the process. Those who find themselves in these situations should be sure to keep business and personal funds completely separate from one another, fully disclose any information about debts and avoid selling off any business assets or otherwise engaging in efforts that may draw unwanted attention to the company. It may also prove wise to consider bankruptcy.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.