If you are thinking of closing a business on short notice because of financial issues, consider the overall cost of closing a business on short notice. Simply closing the business and walking away isn't as simple as it sounds. There are a few closing costs which must be addressed first.
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Business Closure Costs
If you are one of the many business owners who are thinking of closing your business because of financial issues, you must decide when, and how, to properly do this. Closing a business costs money because it is still part of the business operation. The cost of closing a business, especially on short notice, must be considered before taking any other action. There are a few “closing" costs which every business must address before the operation is fully ended.
Yes, you could simply lock the doors and put up a sign stating you are no longer in business. But at this point, even though you are no longer receiving income from the business, you may still be paying bills and settling accounts. One of the costs of closing a business is the disposal of any real property such as buildings or land. Even if you cease operations, you still must pay property taxes for as long as you own the building. You also must continue to pay even minimal utility costs because many utilities will charge a base amount even when no utilities are used such as water, sewer or electricity.
Even in non-retail business settings, there is inventory left at the end of a business operation. Inventory can be in the form of excess material, stock, or supplies. This inventory must be counted and given a cash value. This inventory must be disposed of and the cost of doing this is part of the cost of closing a business.
If the business rents the location, or vehicles, or equipment, these leases must be fulfilled. If you close a business before the end of the lease, there will be costs associated with the fulfillment of the leases. This must be written down as a cost of closing the business. The leases cannot simply be stopped before their end date. Often leases ended early will come with penalties or other financial considerations.
Even if you close a business without much notice, you will still be liable for any sales tax, excise tax, and other payments to the IRS. Also, if you close a business, you may need an accountant to help turn everything into a cash value. The accounting of final taxes, fees, and assets are another cost of closing a business. Without proper accounting the IRS can still hit you, as business owner, with fines and penalties after your business is closed.
Liquidation of Assets
Another cost of closing a business is the liquidation of assets. Unless you want to continue paying taxes and associated costs, you will want to liquidate, or sell off, any assets your business still holds. This includes stock, shares, property, accounts and insurance. Many of the assets at this point will require a third party to dispose of these items, such as realtors, auctioneers, wholesale liquidators or even haulers to take away the garbage. There are also the associated people such as appraisers, inventory takers, accountants, lawyers and any people who work for them.
These are the basic costs of closing a business on short notice, and most likely without planning. Planning the closing a business and carrying out the plan properly takes at least 60 days in advance of the final day of sales. Doing it this way you can know the true cost of closing a business when you need to.