An Exit Strategy: Questions to Consider Before Closing Up Shop
The small business survival rate can be terrifying to people contemplating opening their own shop. According to the United States Bureau of Labor Statistics, approximately 20 percent of small businesses in this country fail within their first year of operation. By the end of year five, half have closed. And these stats were before the pandemic took its toll on already strained businesses.
In the early days of the pandemic, we heard that hundreds or thousands of breweries might close in the United States. Thankfully, that prediction has not come to pass but many beer related businesses have closed while many others contemplate the possibility. For businesses that close, they may have suffered from a sudden downturn in consumer demand for their products or been crushed by substantial cash flow problems. Whatever the reason, breweries that are considering closing can’t just shut the doors and walk away. Closing up a business can take months of work and there needs to be a plan for winding down the business.
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1. Check Out Online Resources
Closing a business is unfortunately a common experience in the United States and there are many resources available online to assist with this situation. The Internal Revenue Service has a checklist available that walks business owners through all of the paperwork that must be filed before the business can be closed, including making final tax deposits, filing final annual returns and employment tax forms, and reporting corporate dissolution and liquidation. The Small Business Association also has resources, including videos, on how to close a business.
2. More Paperwork
The state in which a business runs will also require the filing of dissolution paperwork, which formally notifies authorities that the company is no longer operational. Articles of dissolution will need to be filed with the secretary of state’s office, usually accompanied by the payment of a fee. The business will also need to inform state and local tax authorities and licensing agencies. Failing to file the required paperwork in closing a business could expose its owners to fines, litigation, or extended debt collection.
3. Dealing With Inventory And Your Lease
In closing a business, quickly liquidating any remaining inventory is key. This may require sales on beers, merchandise, and other items. Close out existing contracts and sales or service agreements as the business is able. The business also needs to notify its vendors and suppliers that the business is closing. This allows suppliers to determine whether additional restocks are needed and starts the clock on how long they can collect any outstanding debts owed. This also allows any creditors secured by collateral to work with the business on returning or liquidating it. The business should also move to end its commercial lease in a timely fashion, providing the required notice to the landlord, usually at least 30 days.
4. Two Tough Conversations: Employees and Customers
At the heart of any business is its employees and providing them with notice and support are key components to closing down the operation without disrespecting their service. Before the decision is made to close, a business should prepare how to communicate that message to its employees. Anticipate and address likely questions and explain why the decision was made. Provide them with as much notice as possible so that they can arrange for new opportunities while assisting the business in its final days. Research local laws regarding employee compensation, including paying accrued vacation and sick time. To the extent feasible, offering employees a small bonus to stay on and help the business wind down can make the transition easier. They will often be the front line workers that interact with customers about the loss of the business they may have long supported.
Beyond employees, communicating the decision to customers should also be a consideration. Craft a press release thanking customers for their support and explain why the decision was made. These messages can be communicated through the company’s website or social media services, both of which may be sunsetted after the business closes.
