Closing or Selling Your Business- Which Option to Choose?
Not every business experiences a planned exit, and many fail numerous times before they achieve success. Filing for bankruptcy might be the last resort. However, if you plan strategically, you can recover some amount of your losses and take off smoothly by selling the business. On the other hand, you can choose to close business and sell off your assets to pay off your creditors. So, which is the right option for you – closing or selling your business?
When transferring business ownership in the U.S. – you can either choose to sell a business or close it rather than being declared bankrupt. But there are a number of obligations that come with selling or closing business – managing tax issues, updating your business records, responsibilities towards suppliers and employees, and notifying the relevant corporation department of the states.
So, it is not easy to decide whether to sell or close. In this blog, we will help you make a wise choice by discussing both the options you have when transferring ownership.
Closing Your Business
Closing or selling your business down a business is a difficult decision to make. However, it allows you to negotiate with your creditors and reach a settlement of paying back a consolidated amount for your debts – and avoid the hassles of filing bankruptcy. Business owners in U.S. may pay off this reduced liability amount by selling off their assets to the extent they have funds, and then close it out.
The Small Business Administration offers counseling tool that can help you avail local guidance for your exit plan. Before you close, it is crucial to consult a business evaluation expert or your lawyer, in addition to other professionals like the IRS, bankers, or accountants. Here are the key steps to close your business:
- Partnerships, corporations and LLCs require all co-owners to agree with the decision of closing business and document the same with a written agreement
- It is crucial to file your dissolution documents and legally close the corporation or LLC with the state you are registered in. Otherwise, it can result in continued taxes and filing procedures
- Safeguard your business reputation and finances by canceling business names, permits, trade names, and registrations you do not need
- You must adhere to labor and employment laws as specified in the Worker Adjustment and Retraining Notification Act to know your responsibilities towards employment payments after closing or selling your business
- Resolve all your financial obligations and pay off your debts. Cancel Employer Identification Number and inform state and federal tax agencies. File returns for sales tax and income tax
- Maintain legal employment and tax records for anywhere from 3 – 7 years
Selling Your Business
If your LLC or corporation is running at a loss or not generating revenues as per your expectations, then you may consider selling it off. Interestingly, you can still find a buyer who might have a better financial position and is confident to pull off your business from losses and make it turn around profitably. Unfortunately, closing or selling your business may not always generate enough cash that can help repay your debts.
Here are the primary steps if you are considering selling off your business:
- Consult a business valuation expert to determine a monetary value of your business before marketing it to potential buyers. When figuring out the true value of your business, there are primarily three approaches – income approach, assets approach, and market approach
- Get accurate value for all real estate and property associated with your small business. This may include intellectual property, brand presence, projection of future revenues, and customer information
- Make an official sales agreement that facilitates purchase of stock and assets of your corporation or LLC. It should also include all inventory, assets and liabilities, and comprehensive background details of your business
- Transferring business or ownership is the last stage of selling where you typically have three options – lease agreement, gradual sale, and outright sale
Which is the Best Option?
When transferring ownership in the U.S, you can consider closing your selling your business. But which exit model is right for you will depend on the current financial condition of your LLC or corporation and what you want to achieve. Seek advice from a business valuation expert to make an informed decision.
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