It's a fact. Not every small business will live forever. According to the Small Business Association (SBA), two-thirds of small employer firms survive the first two years in business and 44% survive four years. In fact, 544,800 businesses closed in 2006 alone many for a multitude of reasons besides poor financial performance. When a business ends it can be because it was unsuccessful, it was bought out, merged with another company, or simply because the owner decided to move on to a new business opportunity. Shareholders are either happy because dividends paid out high or frustrated because the business tanked and they lost their investment.

There are two distinct types of business closures. The first is a conscious decision to close a successful business in order to move on to other ventures (be it through a sale, merger, or acquisition). The second is the closure of a failing business. Each scenario holds its own set of mixed emotions and tasks. No matter what the reason, handling the closure with respect for all involved and open and honest communication will ensure your good name and make opportunities available to you when moving on to your next business venture.

Steps for Closing a Business

• Making the decision. If your business is a sole proprietorship or family business, the decision to close will be made solely by you or the family. If however, you are part of a corporation, limited liability corporation (PTY LTD), or partnership, the decision will need to be presented to the group and voted upon using the bylaws established by the company or your state. This must happen before any action steps can be taken to officially close.

• Get your tax ducks in a row. Just because the business is closing doesn't mean that tax payments are no longer an issue. In fact, the ATO will insist on being made happy with prepaid quarterly taxes, employee payroll taxes, and other payments prior to business closure. Final PAYG summaries will also need to be filed for employees at year end along with a final business tax filing. Legal stuff. Once the vote has been made and a decision to close is official, your business will need to file a Officially dissolving the business puts creditors on notice that the business can no longer incur debts.

• Take care of your employees. Once the decision has been made to close the business, it's important to next notify your employees of the situation. Provide as much information as possible. Give expected downsizing dates, if applicable, anticipated severance packages, and any workforce retraining programs that will be available to them. On the employee's last day, you'll need to pay any salary owed along with accrued sick, vacation or compensated time owed.

If employees are needed until the last day, the business may want to offer some type of "stay bonus." Provide each employee a "stay bonus" along with a personal contract outlining expectations, duties assigned, and the length of employment. Remember that being the last person to shut off the lights is a very emotional and draining experience. Provide morale boosts such as business casual attire, Friday pizza parties and other mini events during the waning months to help keep spirits high. Building a flexible work schedule for employees to interview for new positions will also help keep them on staff longer.

Pay your creditors . Prepare a letter to creditors explaining the terms of the business' closure including how and when they can expect to be paid for any remaining invoices. If you have an outstanding line of credit or loan with the bank, you'll also need to make

• arrangements to repay the debt. In these recessionary times, bank loans are called in daily for even the smallest offence. Be proactive with your communication. If the bank discovers your plan to close before you've made the call to your loan officer, it may be far more difficult to work out repayment options. If you have unpaid company credit cards, you'll need to call the credit card company to settle the accounts and officially close the account numbers. Be sure not to miss this step as identity theft is very high after business closures and can mean thousands or tens of thousands in additional stolen debt. These types of crime often go unnoticed until it's too late to resolve.

• Sell off your inventory. If you're in a retail or supplier business, you may find yourself left with a rather large inventory. Now is the perfect time to offer an inventory clearance sale to vendors, customers or even your competitors. You may want to try holding this sale yourself in order to gain the greatest financial benefit. If you're already moving on to another business venture or time is of the essence, there are consolidation and liquidation firms that can handle the sell-off for you for a percentage of the inventory's value.
  
• Accounts Receivables. Don't forget to make every effort to collect on outstanding invoices your business has generated. It's far more difficult to collect on debts once the doors are closed, so review your accounting frequently to help ensure that you're making every possible effort to collect on debts owed to you.

Closing when a business is in trouble.

Unlike the closure of a profitable business, making the decision to close a failing business is often a choice of last resort. Turning off the lights and locking the door doesn't mean that you can just walk away from mounting debts and creditors unfettered. Do you have a plan to meet your debts? If you're overwhelmed by the stress of business issues, the best decision you can make is to talk to outside experts. From accountants and attorneys to business brokers to help streamline a purchase agreement, each expert will bring his/her own set of procedures and solution pathways to your problem.

When talking with lawyers make sure that you're working with a lawyer who is certified in bankruptcy law. S/he should provide you with a range of options for closure, including, reorganization and restructuring. If your attorney is only presenting bankruptcy as an option, you may want to seek another opinion. Attorneys stand to make substantial fees during a restructuring and a few unscrupulous lawyers may over emphasize Administration knowing full well that the business will never survive the process. Why does this happen? If the business doesn't have enough cash reserves to ride out the restructure (i.e. cover attorney's fees and begin repayments), the judge may decide that bankruptcy is the only viable option.

What happens if you can't pay the ATO?

If the business or partnership owes payroll, GST or income taxes, filing for Administration  will provide minimal relief to the debt owed. Partners are personally liable for taxes, so unless you are able to work out a repayment plan or an "offer in compromise" the ATO can seize personal assets such as your car, vacation home or other property to pay off the debt. Don't try to hide from state and federal authorities, rather be open and provide possible solutions for repayment. By working with a Insolvency expert and a lawyer, you'll be well represented and able to work out the best possible solution.

Be Available.

Make yourself and your key management personnel available throughout the closure and have a listing of working contact numbers should anyone need to contact you after the business is closed. Leave one phone line in operation with contact information and ways to reach you.

For good reasons or bad, the process of closing a business can be highly charged with emotion. If you're thinking about selling or closing a business and don't know where to turn, talk with a Cabot Square Advisor.