The Art of Closing Your Business
You would think that after months, if not years, of preparing your business for market, finding a buyer and actually closing the deal, it would be done right? Alas, the universe has a sense of humor.
For the traditional business sale, you as the exiting owner still have a laundry list of items to complete. That’s not counting any possible continuation agreements.
So before you get around to that honey-do list, make sure these items are complete to officially close your business.
Change the Business Name
When you complete an asset sale, the new owner opens a new business entity that has the same name as your former business. Two business entities can’t exist with the same name, and since the new owner bought the name, as well as all the assets and good will, you have to formally change your business entity name.
You’ll be left with a shell company. The entity still exits, but it typically doesn’t have assets, employees, or contracts.
Transfer Intellectual Property and Assets
Some asset transfers will be as simple as handing over the keys. Others will require a little more work to transfer over, such as domain ownership, intellectual property rights, and contracts.
Despite having the same name, legally the existing contracts are with your business entity. Vendors, such as a marketing firm or legal council, will want updated contracts with the new owner. Contracts with clients will need to be updated as well. The former contracts with your business entity need to be canceled.
Officially, you fire all your employees on Friday, and the new owner hires them all on Monday. In addition to issuing final paychecks, all paid time off needs to be paid out and the appropriate audits completed. The final item will be to file employee tax returns.
Get Squared Away with the Government
There’s quite a list of final audits and forms that need to be completed to settle everything up with the IRS, as well as the state and federal government. From making final tax deposits to the aforementioned employee tax to reporting capital gains or losses to reporting shareholder shares, there are quite a few forms you need to finalize. Don’t forget your sales tax audit either.
See the complete list and related forms here.
Collect Receivables, Pay Bills, and Close Accounts
Everything needs to be settled up before closing the business banking accounts and lines of credit. Collect any outstanding receivables. Pay bills and get settled with any current debts. Once all the outstanding items are addressed and no more money will be going in or out of accounts, shut them down.
Formally Close the Business
As I mentioned in the beginning, at this point, all you have is a shell company. Here you have to make a choice to either keep it open or formally close it by marking the “business is closed” box on your final business tax return.
You can keep the business entity open as long as you want, just know you have to file a zero income tax return every year. Many exiting owners keep it open as an option for new businesses, to pursue consulting or simply because they haven’t determined what the next phase of their life looks like.
The Exception: Stock Sales
There is one exception to the laundry list of “to-dos” once you say “I do” to a buyer, and that’s a stock sale. When you sell your stock in the company, once you sign it and hand over the keys, you can walk out a free man or woman.
Well, almost. The only thing you have to do is to ensure you are removed from every line of credit, ownership document, and vendor’s list. The last thing you want is a lawsuit two years from now due to a company car crash because it’s your name on the title. We recommend going through the last two to three years of payables to ensure you’re removed from everything. This ensures you’re protected legally.
Occasionally the company prefers you don’t notify every single entity on your exit, which means your name remains on anything from lines of credit to leases and more. In this case, the company needs to provide you with indemnify documents, which means they will cover any business related legal action.
The Concierge Service
When you partner with Exit Consulting Group, we go through every aspect of closing your business after we close on your sales transaction. These additional services remove countless headaches from your final exit.
That is in addition to the bulk of work we do, which focuses primarily on preparing the business to go to market and then seeing the transaction through to the end. Unlike many business brokers, we are here for you through the entire process.
That’s because at Exit Consulting Group, we’re a full service firm. From determining your long-term goals to submitting that very last piece of paperwork to Uncle Sam, you can count on us every step of the way.