As an entrepreneur, you must have the will to endure the inevitable lean seasons your company is bound to face. At the same time, you also need to maintain a realistic outlook of where you stand. If your business has passed a veritable point of no return in terms of having accrued liabilities, run out of capital, and/or exhausted your customer base, then shutting down your operations may become your best course of action. This way, you’re able to avoid getting further into debt, reorganize what assets you may still have, and live to do business another day.
A Road Map to Limiting Your Personal Liability
Of course, the decision may not be entirely up to you. If your company is incorporated, or your organization is structured as a limited liability partnership or company, then your managing partners will also have a say as to whether you should stop production and end business. Don’t think, however, that because your organizational structure absolves you from all liability regarding your company’s actions that your personal missteps in the management of your business prior to closing won’t leave you holding the proverbial bag when it comes to answering for your company’s financial decisions. Therefore, it’s recommended that you adhere to following sequence in preparation for closing your company’s doors:
- Do an inventory of all of your assets and liabilities: This first step allows you develop a road map to reach an adequate financial accounting prior to closing. Included in this should be thorough review of all financial statements to give you an idea of the resources you have to work with.
- Call for the immediate collection of all accounts receivable: If you’re still owed money from clients, those funds may be able to assist you in your transition. Contact them personally to collect what’s owed. Avoid, however, telling them you’re going out of business at this point. Such news could prompt them to think they don’t need to pay you right away. Consider offering a settlement if it will help avoid a long, drawn-out repayment process. If it appears you’ll have difficulty in collecting right away, consider selling whatever AR you have left to a factor.
- Liquidate all business assets: Your company likely wouldn’t be in the position it’s in if it wasn’t facing some form of financial distress. You certainly don’t want to have that hanging over your head after shutting down. Liquidating your business assets will hopefully provide you with the capital you need to settle all of your liabilities, and hopefully still have leave you with enough funds to compensate your employees and disperse money to your partners.
- Pay off all outstanding debts: Don’t attempt hide any of your business’ debts, and don’t offer personal funds to help settle them. This could open the door for your company’s creditors to go after your personal assets.
- Announce your decision and pay your employees: Once word has gotten out that you’ll be closing, your employees may start panic at the prospect of not being paid. Having settled your debts already at this point, you can afford to issue final paychecks without any worry.
- See to your final tax expenses and duties: Submit your federal and state employment and sales tax forms detailing how much you collected up top closing. Indicate that these will be your final submission. Then prepare and submit your final income and employer tax returns.
- Settle with all of your partners: Once you’ve addressed all of your professional liabilities, you should conduct a final ownership meeting to determine how any remaining assets should be dispersed. Your effort in managing the closing should be taken into consideration when preparing this settlement.
As with any step you take in your career, selling a business is one that requires careful consideration and precise execution. The hope is you’ll emerge from the process with fewer burdens, not having assumed more. Following the aforementioned steps will allow you to do just that, thus helping you to move on to the next chapter of your professional life without having to look back.
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.