How to Close Down a Business
Whether you’re closing down your business by choice or have been forced to do so, it is an involved process with strict compliance requirements. How you shut down will depend on your business structure and why you’re no longer operating your business.
Where possible, plan ahead so you can get professional advice, fulfil compliance requirements, and give affected parties sufficient notice.
Ways to shut down a business
Why you’re shutting down your business and your business structure are the two key factors that determine how you’ll shut down your business. This can range from sole trader deregistration to insolvency-related closures.
- Sole trader deregistration If you’re a sole trader, you can apply to have your ABN cancelled and contact the ATO to let them know you’re shutting down. You might need to alsocancel your business name through ASIC.
- Partnerships You might be shutting down a partnership because you’ve reached the end of the agreed partnership term, you’re insolvent, or the other partner wants to exit. Check your state or territory’s laws to see you’re complying with legal requirements. Typically you’ll need to give written notice to other partners, and follow the procedure for ending the partnership as outlined in the partnership agreement (where available).
- Voluntary closure If you’re a company and all owners have agreed to deregister,you can proceed with closing down as long as the assets are worth less than $1,000 and you’re no longer carrying on business. You should have no outstanding liabilities and must not be involved in legal proceedings. Note ASICcan initiate deregistration of a company in some cases.
- Winding up a solvent company You can also shut down a solvent company through a members’ voluntary winding-down process. This is more complicated than deregistration as you’ll be appointing a liquidator to realise the company assets.
- Insolvency processes Your business could be liquidated following an insolvency process such as voluntary administration, or your business could be wound up involuntarily because of a wind-up notice initiated by a creditor (such as the ATO) through a court.
Is shutting down your business is the right option?
Challenging profit margins, compliance, declining interest in running a business, and strong competition are some of the reasons you might be thinking about shutting down your business. Always seek advice before you commit to closing down, because turnaround strategies you hadn’t thought of could help bring your business back to profitability.
Speak with the experts at Australian Debt Solvers today to discuss whether Voluntary Administration could assist your business.
What to do if you’re shutting down
If you’ve sought advice and you’re confident closing down your business is the best course of action, you’ll want to follow a plan so you address everything you need to.
1. Set a target closing date
Set a realistic target closing date for ceasing operations. This allows you time to clearly plan your closing down and gives you a chance to provide employees, suppliers, partners, and other stakeholders notice.
2. Notify employees
Notify your employees well ahead of time so they have sufficient notice. Check to make sure you’re complying with notice requirements. How much notice you need to give employeeswill depend on how long they’ve worked for you and the type of employee they are. If you’re unable to give them sufficient notice, you can also pay out the notice.
3. Notify suppliers and partners
Contact suppliers and partners ahead of time to inform them your business is closing. You’ll want to give them notice so they know when you no longer need their services or products.
4. Notify customers and complete outstanding jobs
It’s also vital to let customers know when you’re closing down the business. If you’re a major supplier or an important partner, letting customers know can assist your customers with their own planning. In other cases, giving customers more notice could boost your profits until you close down and allow you to sell off all your stock. You could hold a closing down sale and take advantage of the lead-up time to closing down to get rid of stock.
Letting customers know can be as simple as posting a notice online or in your shops, or it might involve making phone calls to customers. You can communicate your message through social media channels, email, or any other means you usually use with your customers.
5. Cancel your lease
If you have a lease for your office or site, remember to end your lease by giving notice to your landlord. If you can’t break your lease, you could check to see whether you can sublet your space or find someone else to take over the lease.
6. Collect accounts receivables
As you plan to close your business, it’s a good time to start chasing down your accounts receivables and make sure your customers and partners pay on time. Having the accounts receivables resolved before your operations are wound down helps ensure you can pay off any outstanding bills and debts before closing down. Consider using collections services for older debts or even options like invoice factoring to help recover hard-to-collect debts.
7. Liquidate stock and realise business assets
Stock, tools, equipment, machinery, property, vehicles, furniture, IP, and licenses could be some of the assets you can liquidate to realise your business’s assets. As part of your winding down, you need to pay your bills and settle your debts, and selling your assets will help you do so.
8. Distribute remaining cash and assets
If you have left over cash and assets, you could distribute these to the owners or shareholders of the company. Usually you’ll need to have paid employees, creditors, and ATO everything owed before distributing any remaining cash or assets.
9. Finalise tax and legal issues
You may need to lodge your final tax return and finalise any other tax reporting requirements before formally closing down. Once you’ve done so, you can notify the Australian Business Register and ASIC and have your ABN and name cancelled. If you have a company, ASIC can deregister it. Let the ATO know so you won’t need to continue with your tax reporting obligations.
10. Retain business records
Remember you’ll need to retain your business records – including customer records, employees records, and financial reports –for usually five years after the preparations of the record or the transaction.
Shutting down your business can be a complex process requiring careful planning. Obtain advice before you shut down to make sure it’s the right option for your business. If you’re certain closing down is the best alternative, take time to plan it properly and ensure you’re complying with the legal requirements.
Australian Debt Solvers are industry leaders in providing advice to businesses in strife. If you’re exploring closing-down options for an insolvent business, we can help with expert advice. Contact us today for a discussion or visit our website to find out more.
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