A comprehensive guide on how to close a business for small business owners

If your business is no longer churning enough profit or you are just ready to move on to something else, it is time to close your business. Whether you want to close your business or sell it to another business entity, the dissolution process of a business involves intricate aspects that every business owner should know.

The decision entails many reasons like a merger or any other financial obligation. You must tie up all the loose ends with the suppliers, potential customers, creditors, partners, insurance companies, and stakeholders to provide the legal termination of service notification.

But before we take you to the steps of knowing how to close a business, you must know that you need to meet different legal requirements when you shut your business for good. Depending on the size and type of your business, the legal requirements might vary which you have to consider in order to ensure that you comply with each of them prudently. They may include filing taxes, selling your assets, and paying off business loans.

What’s in the guide?

  • How to close down a business
    • Step 1: Evaluate the status of your business
    • Step 2: Take professional guidance
    • Step 3: Evaluate corporate documents
    • Step 4: Interact with your creditors
    • Step 5: Liquidating your business assets
    • Step 6:Coping up with the outstanding orders
    • Step 7: Selling of the business assets
    • Step 8: Manage your legal obligations
    • Step 9: Release your employees’ payments
    • Step 10: File Payroll taxes
    • Step 11: Pay your taxes
    • Step 12: Closing of accounts
    • Step 13: Keep records
  • How to close a business in California
  • How much does it cost to close a business in California?
  • Conclusion

How to close down a business

Step 1: Evaluate the status of your business

Before making closure decisions, evaluating your business debt obligations and financial strengths is an important task to perform.

Analyze if there are extra costs and investments that you can cut down so you can sustain in the market and make your business a profitable solution for the time being. Check if you can decrease your payroll costs, reduce workforce, business overheads, hire alternate vendors, or negotiate on your lease. Cutting down expenses can give you some leverage to stay longer in your business and helps your business to become a bit more sellable solution.

Step 2: Take professional guidance

Before you prepare yourself for closing your business, it is important to get some professional advice from your accountant, lawyer, your business partner, or a trusted business advisor.

  • In the event of closing a business, you need to ensure that you have wrapped up all the profit-making avenues associated with your business and your accountant can close your books. Your accountant will be liable to explain the probability of closing a business by reviewing your financials.
  • If you are certain that you should close your business, a legal representative or your business lawyer can guide you through the legal process of closing a business and will assist you in getting out complex legal liabilities. This may include documents and forms settlements related to corporate dissolution, payroll tax filings, and IRS tax forms.

Step 3: Evaluate corporate documents

If your business is an LLC or a corporation, reviewing your corporate documents is a must. This involves articles of organizations, bylaws, and partner agreements. If you run your business with a partner, it is your legal obligation to obtain the agreement of closure to know his/her concerns.

  • Typically in LLC legal matters, partners have to meet in front of a lawyer to vote for the business closure. If the majority of the verdict vote to close a business, then LLC will take further steps to settle the account, filing the paperwork, and paying its workers, in short, begin summing up the liabilities. LLC dissolving laws can vary from state to state, therefore you must adhere to the specific laws where you have established your business.
  • Corporations on the other hand, also need to vote on the decision to dissolve a company. The members and the shareholders of the corporation take part in dissolution voting. Generally, the procedures of dissolution are dictated by the corporation’s business documents. But if they are not, you should follow your state business decrees and adhere to legal requirements.

Step 4: Interact with your creditors

In addition to the legal liabilities of closing your business, it is a sure thing that you contact your creditors. This will help both you and your creditors to calculate and analyze the outstanding debt and help put you in the position to pay and collect the amount. Before deciding to sell your business assets, it is important to inform your creditors about your liquidation plans and keep their trust by letting them know how you are going to repay your debts.  

Step 5: Liquidating your business assets

Just in an event of time when you decide to close your business, try to collect as much money as you can so you can repay your debt and pay off the creditors. Consider the following guidelines when collecting the outstanding debt:

  • Call your borrowers and debtors to remit payments as early as they can. You can use discount offers and incentives for those who pay the amount back quickly.
  • Try to collect all your debts before you make an official announcement of your business closure. The debtors may try to hold the payment if they know that your business is heading towards closure.
  • If your company holds significant account receivable, look for a company that purchases account receivables and sells them to have a significant amount of money in your hand. Probably, these companies will take your accounts at a low price, but you should not try to gather any debt so you can acquire your funds quickly.

Step 6: Coping up with the outstanding orders

If your business runs under a contract to provide services or goods, you must try to keep up with fulfilling your responsibilities of contract or try to negotiate to end the contract before time. It is crucial to make contact with your customers and tell them about the outstanding order. Either you can deliver them on time, need to cancel them or try to find a solution. If you provide bulk goods or services to other companies and you fail to reach an agreement, you may be sued for breaching the contract.

Step 7: Selling of the business assets

Another requirement involved in the liquidity process is the selling of your assets. Attempt to perform a thorough research of your inventory and begin the process to gain some money by selling them. Based on the fact that you need to close your business as quickly as possible, you may need to offer a discount on certain inventory to move them as early as you can. Consider the following ways to sell your products and goods quickly:

  • Try arranging an auction: Arrange an auction within your business premises and permit visitors to look over the inventory and have their bids. This will cut your shipping cost and extra work that your workers might have to do if you put your auction in any other place.
  • Find a consignment store that takes your goods and pays you a percentage of your goods when they sell.
  • Try selling your goods online: Number of product selling services like Amazon and eBay that work online that sell numerous goods without putting the liabilities on the vendor to ship the required goods to the customers. This can be a better way to sell your items and equipment.

Step 8: Manage your legal obligations

If your business is established on rent, then you must provide your landlord with a legal notice and tell when you are attempting to end your lease before informing you that you are terminating your lease contract. Your landlord may require you to pay the entire lease of the land until he finds another tenant. This is referred to as mitigating damages that you have to pay for ending your lease before time. You will be responsible to pay the rent only until the time when your landlord brings another tenant. 

If the location of your renting land is in high demand, then your landlord may charge you with an additional fee for lease termination. As you are closing a business, landlords will be willing to get something for the lease termination.

Step 9: Release your employees’ payments

Since your business is closing down, you need to pay your employees for whatever they owe to the company. This will include unused vacation time and wages of course.

Probably you need to provide a final paycheck to your employees within a certain time. The USDL (United States Department of Labor) provides state rules that determine whether you are entitled to provide your employees with their unused vacation time when you close a business. If your company has more than 100 employees, you need to clear their allowances and wages within 60- days of your closure.

Step 10: File Payroll taxes

It is also important that you submit your employees’ withheld taxes timely to the Federal government and state. Failure to submit these tax returns may end up in penalties for the equal amount you owed to the government. To gather the collectible taxes, the government can seize your assets and can recover the debt.

Step 11: Pay your taxes

The IRS has managed a list of tax obligations that business owners need to review before they close their businesses. It says that you should file all the Federal and State tax information. Check the list with your accountant to know which of the tax you need to pay.

  • State and Federal Income Tax
  • Sales and Payroll Taxes
  • Business taxes and tax returns including the ones from employees
  • Pension plans, medicare, and social security

Step 12: Closing of accounts

Once you pay all your financial liabilities, you should shut your linked bank accounts and credit card accounts associated with your business.  Not just financial accounts, you should terminate your social media accounts and shut your company website as well.

Step 13: Keep records

It is also important to save the duplicates and the original documents of your business record for the next several years. This will help you to defend any business claims that could arise in the future.

As mentioned above, the state rules can differ for the closure of a corporation or LLC. Let’s suppose if you live in California, what other legal liabilities do you have to meet.

How to close a business in California

To dissolve a corporation or LLC in California, you must file the paperwork with the accurate information to the California Secretary of State and file your business tax returns to the California franchise tax board.

How much does it cost to close a business in California?

The California Secretary of State does not charge any fee to file the business dissolution forms. However, if you want to speed up the process you can pay a fee for preclearance and expedited service. Through preclearance, you can submit your documents before submitting the dissolution form to review if there’s any mistake that may become the reason for your form rejection.

The California Secretary of State takes 3-4 weeks to process your dissolution. But it depends on the traffic, it can take a longer time than that.


From the above-detailed guide, you might have understood the steps on how to close a business, however, when a business setup dissolves, you need to make sure that you have cleared all the legal obligations and state liabilities that may entail a claim in the future. Summing up your business affairs may include closing vendor accounts, bank accounts, credit lines, and of course responsibilities against your corporate allies. Additionally, you must notify the vendors, customers, landlord, and any other partner about the dissolution of your business. For a quick wrap-up of knowing how to close your business, look at these steps to follow.

  • Evaluate the status of your business
  • Take professional guidance
  • Evaluate corporate documents
  • Interact with your creditors
  • Gather the outstanding finances your business owed
  • Coping with the outstanding orders
  • Selling of the business assets
  • Conclude your lease
  • Release your employees’ payments
  • File Payroll Taxes
  • Pay your taxes
  • Close your accounts
  • Keep records of your business

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