Leaving Your Business
Considerations for forming an exit strategy and closing your business
Forming an exit strategy for your business is a topic that doesn’t often get the attention it deserves because it is overshadowed by the more glamorous and controversial aspects of business ownership, such as expansion and health benefits.
Whether you are selling your business, filing for bankruptcy or retiring, it is important to go about the process in the right way to ensure the best financial, logistical and legal outcomes. After all, cutting corners in the final hour can come back to hurt you years down the road regardless of how carefully you ran your business up until the closing process.
Making an exit plan
The Small Business Administration understands that business owners prefer to focus their energy on growing and profiting rather than planning an exit strategy, but a truly successful business is one that concludes as successfully as it opened.
You may have been putting off making an exit plan or unaware that it was even an important consideration for business owners not planning on selling or retiring in the near future, but it is necessary for all business owners.
According to the SBA, “[A] business exit strategy not only means having a plan for the unexpected—including financial hardship, injury, disability and even death—it also means having a plan for the succession or transfer of ownership of your business when it comes time to hang up your hat and retire.”
The SBA recommends that all business owners have a succession plan in place long before it is needed, to ensure that the business is in good hands no matter what circumstances arise. It also suggests using SCORE’s five-step guidelines for making the plan, which can be found at score.org/resources/developing-succession-plan.
If your business is family owned, you may find the SBA’s guide to ownership transfer helpful in forming your succession plan. You can access the guide at sba.gov/content/transfer-ownership.
In order to protect the financial future for you, your employees and your family, you must set up a retirement plan and ensure that sufficient life and disability insurance is in place. An IRA is a good retirement option for sole proprietors, but businesses with employees can benefit more from a retirement plan available to both the owner and employees. You will even receive a tax benefit when setting up a retirement fund for your employees.
The IRS’s guide for closing a business is another useful resource for the planning process. It can be found at irs.gov/Businesses/Small-Businesses-&-Self-Employed/Closing-a-Business.
Closing the business
If your business is a sole proprietorship, you do not need to consult anyone else to close it, but it is still advisable to seek the advice of professionals, such as lawyers, the IRS, accountants, bankers, auctioneers and business brokers. Owners of corporations or LLCs have more complicated legal requirements for closing and should therefore consult these experts at every applicable step of the process.
It is especially important for all business owners to speak with tax experts during the process because there are many filing requirements for the year in which your business closes. Even if your business is a sole proprietorship, you may still wish to notify the government of your business’s dissolution to ensure that you are no longer liable for taxes.
Aside from filing dissolution forms, you should cancel all permits and licenses related to the business once you no longer need them. Similarly, if your business was operating under a trade name, you should contact your local government to cancel it.
If your business employs at least 100 employees, it is necessary to provide them with a minimum of 60 days’ written notice before closing. This protection is a provision of the Worker Adjustment and Retraining Notification (WARN) Act. Businesses with fewer than 100 employees may be subject to similar worker protection legislation at the state level.
Furthermore, all businesses may be subject to laws regarding last paychecks and the payment of unused leave, so it is important to consult local government about these matters.
The SBA cautions business owners to retain business records for up to seven years because they may be required even though the business has closed. This is especially true for tax and employment records.
When you have a sound exit plan in place, consult the appropriate experts and carefully complete each step of the closing process when the time comes, you protect your financial future, business reputation and employees.
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