There are times when, no matter how hard you work, the best thing to do is just close down your business. If you’ve reached the conclusion that winding up operations is your best option, there are right and wrong ways to do it. If you’re not careful, you could end up in trouble with tax authorities or have problems with the bankruptcy court, if that’s the approach you choose. Here are some guidelines:
The Wrong Things to Do
For most people, the biggest mistake when closing down a business is waiting too long. Be realistic and take an honest look at your prospects for turning the business around. If the odds are stacked against you, the longer you wait, the deeper the hole will be.
Once you’ve decided to terminate operations, be careful about how much money you take out of the business. It’s okay to take a reasonable salary, but it must be commensurate with the amount of work, time and effort you are putting in. If you simply let the business die, but pay yourself throughout the process, your creditors may have a legitimate claim to some of the dollars you took.
If you are trying to negotiate the closing of the business, don’t lie to creditors by making promises you can’t keep or by failing to disclose assets or income the business may have.
The Right Things to Do
The most important thing, when closing a business, is to have a plan. That includes what we call a “go dark” date—the date by which you expect the doors will be closed and the power turned off. Pick a realistic time period, but set a date, or you may be winding down operations for months or years.
Once you’ve determined your “go dark” date, get all your records in order.
It’s equally important to hire an attorney to guide you through the process, so that you comply with all legal requirements.
Make certain you’ve filed and paid all taxes due, especially sales and payroll taxes. Failure to pay payroll taxes can result in a 100% penalty and you can be personally liable.
Another important task once you’ve decided to close down is to aggressively attempt to collect any outstanding amounts owed to your company. The more dollars you have to satisfy creditors (to whom you now owe a fiduciary duty), the easier the process will typically be.
Contact Neuner & Ventura, LLP
We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.