Surviving Small Business Failure and Preparing for Future Success
- Esmeralda Yniguez
Many small businesses struggle to survive, and unfortunately, some fail. When a small business fails, it can be a difficult and emotional experience for the owner. However, taking specific steps to properly close the business and address any outstanding financial issues is essential, as doing so can pave the way for future business success. Ignoring these issues can lead to serious consequences, such as legal action, damaged credit, and personal financial ruin.
Follow these six essential steps to properly close your business and prepare for future endeavors with confidence and financial peace of mind.
If the business has employees, the owner must ensure that all outstanding payroll taxes and wages are paid in full, including any unpaid wages or overtime, accrued paid time off and other employee benefits (if applicable), and all related payroll taxes such as Social Security and Medicare. The business owner should calculate the amount owed and make sure that all payments are made in a timely manner. Failing to pay outstanding debts can result in legal action being taken against the business owner or even lead to personal bankruptcy.
It’s important to note that canceling contracts and leases can be complicated and may require legal guidance to ensure that the business owner is following the proper procedures and avoiding any potential legal liabilities. As such, the business owner should consult with their attorney or CPA to ensure they follow the correct procedures and avoid potential legal liabilities.
Regardless of how the inventory is handled, the business owner must keep accurate records of all sales or disposals. This can help with tax reporting and provide an accurate picture of the business’s financial situation at the time of closing.
The IRS offers several options for businesses that cannot pay their taxes in full, including installment agreements, offers in compromise, and hardship status. It’s important to consult with a tax professional to determine the best course of action for your specific situation.
Business owners should also take steps to close any personal accounts used for business purposes, such as credit cards or lines of credit. By closing these accounts, business owners can help to avoid any potential liability for future charges that these accounts may incur. If applicable, consider the need to dissolve your corporation, LLC or partnership and consult with your business attorney.
Although closing a business can be a harrowing experience, it can also be a valuable learning opportunity for future business endeavors. Therefore, it is essential to reflect on why the business failed and take steps to prevent the same outcome in the future. Do not forget about the good experiences lived and the contacts and relationships made along the way. Keep an inventory of both the successes and failures to take forward to your next project.
Prevent future failures by thoroughly analyzing the previous business’s financial and operational performance, identifying any mistakes made, and areas for improvement. Seek advice and guidance from experienced professionals who can provide valuable insights and guidance, and help avoid common mistakes, increasing the chances of success in the future.
Closing a business is a difficult experience, no matter the circumstances, but you don’t have to do it alone. Contact your CRI advisor to learn more about how our team of experienced CPAs can provide you with the guidance and support you need to navigate a business closure. And when the time is right, we’re ready and equipped to take proactive measures to prepare you for your future business endeavors and pave the way for your success. Whether you are planning to start a new business or seek a fresh start, we are here to guide you through every step of the process.
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