What are the reasons for closing a business? How to Properly Close Your Business?

Here are some reasons for closing a business:

Poor Business Plan

The reason for many business failures is a poor or inexistent business plan. An effective business plan describes the goal of the business owner and formulates a way to reach those goals. It identifies the market, customer requirements, sales projections, special niches, and price range. A business plan covers your budget, marketing strategy, management plan, short term, and long term goals. The business plan not only focuses on the proposed business but also the potential competition of the enterprise.

Lack of Capital

A business that runs out of working capital before bringing insufficient funds to cover its expenses is the result of poor budgeting or unrealistic forecasts. At the time of determining the initial budget, the business owner can underestimate expenses, like material costs, labour, or utilities. The entrepreneur may assume that the company will start paying for itself long before it does, resulting in reducing money and accumulating bills.

Poor Management

An entrepreneur must have management skills. Poor management is a common reason for business failure. Managing the business requires organizational skills, coordinating staff, paying great attention to details, and dealing with endless paperwork.

Unforeseen Events

An entrepreneur in another state might create something new that would make the service or product of the business out of date. Its main supplier may go out of business suddenly, making it difficult to reach demand. It is sometimes impossible to predict any unforeseen event which can close a business.

Health Reasons

Even with a stable infrastructure, strong business network, skilful employees, it is not always possible to sustain a business when its owner falls ill. Companies close mostly because of health issues. Even if the owner has significant health problems or if the owner has reached an advanced age and no longer has the ability or desire to proceed, a prosperous and thriving company may close its doors.

Here are some guidelines on properly closing a business:

1. File your final tax return

When you close a business, you are required to file an annual tax for the last year of your business even if you've only been in business for a portion of that year.

For example, if you have a company in the USA, all corporation and LLC tax return records, including ScheduleK-1, have a denotation that this is the "final tax return." Check that box and then contact the IRS and close your employer identification number (EIN) account.

2. File your final employment tax return

Tax-related matters include filing a final employment tax return if you have (or had) employees in your company. And don't forget to make the last federal tax deposits also for your employment tax return.

3. Deal with dissolution documents

Unless you officially dissolve your company, it will be listed as an ongoing organization by the government, paying taxes and fees. Filing dissolution papers is particularly essential if you have partners or other business owners, as this avoids potential property and liability uncertainty.

4. Take stock of the business and sell it

Sell all the assets that your business may have remaining, and ensure that you report all business assets using IRS Form 8594 (the Asset Acquisition Statement). You can be able to recover some of your business losses by selling your inventory and equipment.

5. Cancel licenses, permits, and insurance policies

If you have your business areas such as city, town, county, state, or federal licenses, please contact the issuing authorities to cancel them. Also, make sure to contact your insurance broker to cancel business liabilities, and compensation insurance, and inform your employee-based health care provider about the business closure.

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