Closing a small business can be stressful. After all, it’s something built from the ground up, so that’s completely understandable. But, following the right rules and procedures can mean the closing down process can be made as stress-free as possible.
This article will briefly go through how to close down a business, but first, it’s important to know when it’s the right time to shut up shop.
How to know when to close a business
The biggest sign that it’s time to close a business is financial performance. Continuous poor performance or missing financial targets without a sign things are going to get better means it may be time to throw in the towel and minimise losses.
For a young business, the test is whether it’s keeping up with the original business plan and financial targets. For instance, is the business profitable after a few years of operating and/or on-track to do so? If not and things aren’t looking up, minimising losses may be sensible.
Or for a longer-term business, slipping performance may be an indicator that ending on a high is better than getting into financial difficulty. Before things get bad, an owner might feel that closing up shop is a sensible way to prevent significant losses down the line.
To help prevent a massive, unexpected financial setback, businesses should have the appropriate business insurance in place throughout their trading lives. If a business would struggle financially because of an unforeseen event such as theft, a fire or a liability claim, the right policy could help keep a business in the black.
Closing down a business checklist UK
Although closing down a business is never a good thing, it’s less stressful and easier with clear information. Here is a brief checklist for businesses that have decided to voluntarily close down.
Check the business is eligible
Before going through a voluntary closure to get the company removed from the Companies Register, it needs to be eligible. The following four must apply to a business:
- The business hasn’t traded in the past three months
- The business hasn’t changed its name in the past three months
- The business isn’t threatened by liquidation
- The business has no agreements with creditors
If a business meets these four requirements, it’s possible to proceed with a voluntary closing of the business. If not, and a business can’t pay its bills, for example, the business will have to go through with a forced liquidation.
Submit an application to Companies House
The next step is to submit an application to Companies House to begin the process. This is done by filling out and sending off Form DS01, which must be signed by the majority of directors or named business owners.
A £10 payment is required to have the form processed. Be sure not to use a cheque from a bank account that belongs to the company that’s about to be closed.
As another approach, consider a members’ voluntary liquidation, which is when a company is solvent but enters liquidation. For example, when a business owner is looking to retire.
Notify shareholders and employees
All parties who have an interest in the company must be contacted within 7 days of submitting an application for striking the company off the register. Specifically, the following parties must be informed:
- Managers or trustees of employee pension fund
Failing to tell the right people that the company is closing down could result in fines and possibly prosecution.
Sort out any business assets
When closing a business, it’s critical to sort the business assets. This will be more complicated depending on the nature of a business, but this can be accomplished in two main ways.
Firstly, share the business assets between shareholders before the company is closed down. Or, enter voluntary liquidation. This will mean liquidation or the sale of company assets before closing.
Voluntary liquidation could be done by quickly selling off assets, or possibly using an Inventory Liquidator, which are firms specialising in purchasing a company’s excess inventory.
If a company was insolvent at the start of the process, there isn’t an option here as a forced liquidation to pay your creditors will be necessary.
Tell HMRC the business is no longer employing people
As a business is closing, it will no longer be employing staff. It’s important to tell HMRC as soon as possible that a business won’t be employing any more staff, to halt PAYE and national insurance payments.
Deal with employees
Continue to follow the rules regarding staff. The business must pay their final salaries and also follow the rules when making any forced redundancies.
Close business bank accounts
Before the business closes down, move funds from company bank accounts. Failing to do this before the company is struck off the register means all remaining funds and assets will pass to the Crown.
To sum up
For a business that chooses to close down, the process can be made less stressful by following the right rules and procedures. The checklist here will ensure completion of all the important steps in closing down a business, from submitting the application to dealing with company assets.