Advising your business clients on closing their businesses
Amid all of the terrible things that have been happening in 2020, we can add small business losses to the list. Most small businesses start with an entrepreneur who has a dream, a hope, and a spark. Building a business involves struggling, nurturing, and growing day after day, hopefully into years, and finally into success. Owning a small business includes a constant monitor and evaluation to understand its health, and pivot when required.
A business owner typically defines their identity to the business by being vested and self-identifying to the company’s mission. The closing of that business can bring an identity crisis for the owner, leading to a potential loss of a circle of friends, a sense of community ranking, and a sense of irrelevancy.
When something or someone is lost, there is a cycle of grief. The steps are as follows:
- Shock and denial – avoidance, confusion, blame, and fear
- Anger – frustration, anxiety, embarrassment, and shame
- Depression and detachment – overwhelmed, helplessness and lack of energy
- Dialogue and bargaining – Reaching out, desire to tell the story, and struggle to find meaning
- Acceptance – exploring options and creating a new plan
- Return to a meaningful life – empowerment, security, self-esteem, and meaning
When evaluating these steps, it’s easy to identify what stage a business owner may be in the cycle.
Unfortunately, the first three steps can last a while, and in that timeframe, the business has to go through the process of closing his or her doors.
The role of the financial advisor/accountant can come into play during this period. The advisor can help the business owner not only understand the steps needed to finalize the business, but also the repercussions of the company if the company isn’t legally “closed.”
The steps to closing a business, according to the SBA website, are as follows:
- Decide when to close. Pick a date.
- Follow the articles of organization, and document with a written agreement.
- File dissolution documents. (If you fail to do so for an LLC or Corp, the state you registered in may expose you to additional taxes & filing requirements.)
- Cancel registrations, permits, licenses, and business names.
- Comply with the employment and labor laws of the state.
- Resolve any financial obligations, such as unpaid bills, sales tax payments, and payroll tax liabilities
- Terminate your lease, or any lease agreements.
- Close any bank accounts (after all the final checks have cleared).
- File any last employment 941 and W-2 forms.
- Cancel your employer identification number. Here is the IRS checklist.
- Cancel any state license numbers.
- Maintain all documentation for tax and employment for three to seven years.
- Reach out to the CPA/tax preparer, and provide any final financials.
As we work with clients to grow their business, it isn’t easy to see any client close their doors. The ability to offer these final steps and provide other guidance and services is a great way to ensure the business is adequately closed down.
The environment of the world today needs us to all work together. Offering services, or even paying it forward, will help provide closure on the advisor’s part as well.