How to Close a Business

1. Collect on accounts receivable

Before you go public with your plans, make an effort to collect outstanding receivables. Call the people who owe you money and see if you can negotiate immediate payment. People may be less likely to pay you if they know you're getting ready to go out of business. And the money you collect can help you pay off your creditors.

2. Notify employees

Your employees will figure things out sooner or later, so it's best to be upfront and tell them when you're closing the business. While you're at it, contact your company's benefits coordinator about health insurance and retirement plans.

Check your state's laws for guidance on when you must issue final paychecks. Make a plan for reimbursing final employee expenses and having employees turn in company property such as computers and cell phones.

3. Notify creditors

To minimize the chance of surprise claims, lawsuits, or late fees in the future, send your creditors a written notice explaining that you're going out of business. Tell them how to submit claims for payment and give them a deadline after which claims will be barred. Most states require 90-180 days' notice.

A notice to creditors minimizes the chance that unpaid bills or late fees will surface later on. If you don't have enough money to pay your creditors, try to negotiate a lower amount or seek advice from a bankruptcy lawyer.

4. Deal with taxing and licensing agencies

Find out whether your business owes any federal or state taxes and pay whatever you owe. In some states, you'll need a document confirming you're up to date on all your state taxes before you can file articles of dissolution.

Other tax and license issues you may need to address include:

• File final state and federal income and employment tax returns.
• Cancel any DBA registrations with the agency where you filed them.
• If you have a general business license or specific licenses related to the kind of business you're in, cancel them.
• If you're registered to do business in other states, contact those states to find out how to unregister a business.

In addition, cancel state sales and unemployment tax registrations.

5. File articles of dissolution

If you filed paperwork to establish your business as a corporation, LLC, or other formal business entity, you'll need to file articles of dissolution to end your business's legal existence. If you don't, you'll still be responsible for annual reports and fees. You'll file dissolution paperwork with the same agency where you filed your formation documents.

You don't need to file dissolution articles to close a sole proprietorship or general partnership. But check your state's requirements if you filed your partnership agreement with the state.

6. Wrap up your business finances

Sell off your assets and inventory. Pay your taxes and other creditors, and issue your final payroll. Pay off and cancel company credit cards. Once everyone has been paid, you can distribute any remaining money to the business owners.

Finally, close your business bank account and close your business with the IRS by canceling your employer identification number.

Shutting down a business takes time and planning. But once your business is dissolved, you'll be free and clear and ready for the next phase in your life.

Business closure FAQs

Do I need to vote with my business partners before closing my business?

Yes, if you have business partners or a board of directors, you must hold a formal meeting and vote on closing the business. This vote needs to be written down in what's called a "resolution" (basically a formal document that records the decision). If you're the only owner of your business, you can make this decision on your own. Everyone involved needs to agree before you can officially end it.

What should I do about the money people owe my business before I announce I'm closing?

You should try to collect all the money people owe you before telling everyone you're closing down. Contact customers who haven't paid their bills and ask them to pay right away. You might even offer them a small discount to pay immediately. This gives you more cash to pay your own bills and debts when you close. It's like cleaning out your locker before the school year ends - you want to get all your stuff back before everyone knows you're leaving.

How do I properly notify my employees that the business is closing?

You need to be honest and upfront with your employees about the closure as soon as you've made the final decision. Tell them about their final paychecks, when they'll get paid, and what happens to their benefits, like health insurance. You also need to collect any company property they have, like laptops, phones, or ID cards. Some larger companies must give employees 60 days' notice under federal law, so check if this applies to your business. It's important to treat your employees fairly during this difficult time.

What's the proper way to tell creditors (people I owe money to) that I'm closing?

You must send written letters to everyone you owe money to, explaining that your business is closing. In these letters, tell them how to submit their bills and give them a deadline (usually 90 to 180 days). Most states require you to do this, and it protects you from surprise bills or lawsuits later. If you don't have enough money to pay everyone, try to negotiate payment plans or talk to a lawyer about your options. 

What tax paperwork do I need to file when closing my business?

You need to file final tax returns with both the federal government and your state, marking them as final returns. This includes income taxes and employment taxes if you had employees. You also need to pay any taxes you still owe and get a tax clearance document from your state (this proves you've paid everything). Don't forget to cancel your business licenses, permits, and registrations. You’ll also need to cancel your EIN with the IRS by sending them a letter.

Do I need to file special paperwork to officially close my business?

It depends on what type of business you have. If you have a corporation or LLC, you need to file articles of dissolution with your state government. This officially ends your business's legal existence. If you're a sole proprietor or have a simple partnership, you usually don't need to file dissolution papers, but you should check your state's rules. Filing these papers stops you from having to pay annual fees and officially closes your business in the government's records.

What's the final step to completely close my business finances?

The last step is wrapping up all your money matters in the right order. Sell any remaining inventory, equipment, or other business assets. Pay your taxes, creditors, and final employee paychecks, as well as any business credit cards. Once that’s done and your business credit cards are cancelled, distribute any leftover money to the business owners and close your business bank account. Make sure to keep records of everything for several years in case you need them for taxes or legal reasons later.