The financial details behind closing your business
By ATB Financial 14 July 2020 4 min read
This is the second article in our Life After Business Series. Here is more helpful advice around alternatives to business closure and some key considerations when closing your doors for good.
If you have to make that tough decision to close your business due to the pandemic, you’re about to embark on a journey very different than launching and running your business. As you wind down your company, many crucial financial considerations have to be managed so your exit goes smoothly.
Visit your financial intuition sooner rather than later to discuss your decision, advises Travis Wojtowicz, director for the Turnaround Assistance Group at ATB. “If there’s a small detraction in your business plan and you’re projecting a loss in the next few months, talking it through with your financial institution can give you the option to make a few small changes instead of a big drastic change such as business closure.”
He cites the example of a firm he talked to that was considering closing for good but when he assessed their books, he noticed their largest expense was labour. Wojtowicz estimated the firm would be under water in eight months and suggested the company reduce labour costs, perhaps paring down to key staff. “They decided to use a job share model and all staff took an income reduction of 20 per cent, instead of having to fire anyone or everyone, and the firm continues to operate,” he notes.
Selling potential, dissolution and taxes
When the time comes to move on from your current venture, you might wonder if there’s a buyer interested in acquiring your business. But it’s not as easy as getting the word-of-mouth buzz out there that your business is up for sale.
“It all comes down to the financial health of business,” says Jason Bacon, senior manager, entrepreneur education, at ATB. “What are you selling? Is there value in what you have and why you are selling it? Most of the time, a bank is needed to finance that transaction or you’ll finance it as the owner. So the question becomes are you willing to take that full risk of whatever that value is? That’s a really tough question to answer.”
Then you have business registration and dissolution to tackle. If your company is incorporated you can dissolve your corporation voluntarily, so consider cancelling your business registration (which means giving up your business number.) In Alberta, you can cancel a business registration via an authorized registry agent.
If your business is incorporated, you need to dissolve it legally, which means getting a special resolution passed at a meeting of the shareholders or the consent in writing of all shareholders entitled to a vote. In Alberta, you’ll need to file an Articles of Dissolution Form with an authorized service provider.
Another item to cross off your checklist is managing your taxes. You’ll be confronted with a lot of final taxes to file and pay before you can eventually close the doors on your business.If you collect sales tax, you’ll have to submit final taxes and close your retail sales tax and provincial state tax accounts with the appropriate personnel.
Also, don’t forget that when you wrap up your payroll accounts, you’ll need to send all CPP contributions, EI premiums, and income tax deductions to your tax center within seven days of the day your business ends.
Pay debts and write down everything
Your business closure situation may include some debts that need servicing. Beyond what you may owe the government if you accepted any loans before or during COVID, you also have your financial institution’s assistance to pay back, if applicable.
Make arrangements to settle any outstanding debts which includes the suppliers and vendors who serve your business. You don’t want to leave any debt hanging over your head that could lead to unpleasant legal action, especially if you’re one of those entrepreneurs seeking to launch another company after you resolve the current business closure.
Keeping company records is wise evergreen advice no matter where you are with your business.But with closure looming, you especially need to record everything you’ve done— from dissolution details to tax and employment information. Ensure these records are kept safe and private, and back them up securely.
Both Wojtowicz and Bacon recommend involving all the partners of your business in managing the many moving parts of closing up shop, such as your financial institution, lawyer and accountant. “They can help wrap your head around the hard decisions you have to make,” Wojtowicz says.
Making the big leap to default is littered with challenges and pain, but to ease the burden of it all, be open to the many other perspectives of those who can answer your questions. Your financial professionals and lawyers should be by your side to help you navigate this segment of your career with minimal anxiety.