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It can be challenging and emotional to let go of your prized business venture. You have probably spent as much time working on your business as you would raising a child. However, if you know that it is the right time to let go of your business, it is not as simple as walking away. There is paperwork to take care of, taxes to pay, and staff to care for. Therefore, it is vital to get your ducks in a row before terminating your business. If you are thinking of terminating your business, this article will outline six things to consider before signing any documents.

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Essential Considerations

Pay Any Outstanding Bills

Importantly, you will need to pay off any debts you have before you terminate your business. Debts can include any outstanding rent, power or council rate payments. However, you may also be making other recurring payments, including software subscriptions or direct debits. Make sure that you also remember to cancel any of these you no longer need. However, keep in mind that some of these services may charge a cancellation fee. As a tip, ensure you check the cancellation terms before cancelling to avoid any nasty surprises.

Additionally, you may be a business that sells services and has outstanding work orders or jobs that you will be unable to complete. In that case, you may need to notify your customers and refund any payments they may have already made for these jobs. It is a good idea to look at the individual contracts to see if there are any early cancellation fees or other penalties.

If you have had to close your business due to COVID-19 and government-mandated lockdowns, you may be able to claim “impossibility of performance” as a reason for contract termination. However, whether you can claim this will be dependent on the nature of your closure and the contract.

Inform and Compensate Your Staff and Other Stakeholders

With any business venture, there will be several people who have assisted you along the way. Thus, if you are terminating your business, there may be people and groups you need to inform.

If you have employees, you will need to make sure that you:

  • comply with all employment laws when letting them go; 
  • act in good faith; and 
  • follow fair process of termination. 

Importantly, have a look at their employment contracts to see if there are any special terms regarding the close of business. 

Typically, you will need to pay employees their final leave and holiday pay. However, there may need to be further payments, including severance pay. In addition, a job loss and finding a new job will likely cause significant stress for them, so make sure to give them plenty of time to prepare and look for new work before you close your business.

You may also want to notify loyal customers or other people and groups that have supported you throughout your business journey. For example, it could be a good idea to post on social media or send an email to all of your customers to let them know that you will soon be closing down. Personally informing your customers of your closure is a great way to maintain relationships as you transfer out of your business.

Pay Your Taxes and Inform IRD

Additionally, you will likely have to complete your final tax returns and other paperwork before you close your business. Make sure to inform Inland Revenue (IRD) of your decision to terminate your business. You can have a look on their website to see what documents you may need to get in order. 

Further, you may need to value any remaining assets to pay GST or other tax on them. You will also need to cancel your employer registration with MyIR and deregister for GST.

If you have applied and received any money under the Wage Subsidy Scheme, you may need to refund any money that you have received to the Ministry of Social Development.

Making Your Business Termination Smoother

Sell Any Non-Essential Assets

It is a good idea to sell assets you do not often use before your business terminates. These can be both tangible and intangible assets. You can sell the rest of your assets after you close your business. However, getting rid of items you will not need in the meantime will save you time in the long run. 

To save some time, it is also a good idea to see if you can find buyers for essential business goods, like computers and vehicles, before you cease operations. Any assets you sell before you close will help bring in cash to pay off any outstanding debts your business may have when you close. 

Look Into the Terms of Your Leases

If you lease a building for your business, you will need to have a look at your lease agreement. Notably, check whether it allows you to cancel or transfer your lease. If your lease continues past the day you wish to end your business, you may need to find someone to take over your lease or pay a fee to cancel your lease. If you have not determined the day you wish to stop operating, it could be convenient for you to consider the date when your lease expires.

Recover Any Debts You Are Owed

Another way to make the termination process smoother is to recover any debts owed to you. Once you close your business, it can be much harder for you to collect these payments. Therefore, it is a good idea to start collecting any debts or accounts receivable that your customers, or anyone else, may owe you. This will allow you to have some more cash in hand to help pay off any outstanding debts at the close of your business.

Key Takeaways

Before terminating your business, there are several things you should consider so that you avoid any penalties and reputational issues. It is essential that you pay your taxes, compensate your staff, and pay any bills before closing down your business. It is also good to consider getting a headstart on selling your assets. Further, making sure that you receive any outstanding payments and looking into the terms of your lease agreement are essential steps to take in closing your business. It also provides cash which you can use to pay down creditors.

If you need help with terminating your business, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What relevance does COVID-19 have to the close of my business?

If you have received any wage subsidy payments, you may need to pay them back. If you cannot complete any contracts or other work because of a lockdown or other COVID-related issues, this may provide a possible out to some contracts. However, note that these circumstances are all very context-specific.

When should I sell all of my business assets?

It is good to sell any assets that you do not often use before you terminate your business. This will give you more cash to fund the closure of your business. For assets that you frequently use, like a car or computer, it is a good idea to sell them after the close of your business, as you will likely continue to need them until then. If you can find buyers for these assets early, this will save you time in the long run. 

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