It may seem like deciding to open or close your business is the hardest part of the process. In truth, though, you have some important accounting responsibilities to address, and if they’re not done right, the business could either start off on the wrong foot financially or continue to cause you prolonged stress long after you’ve closed it and ceased its operations.
Hanging Your Shingle?
Let’s start with opening your business. Picking out a name, designing a logo and a website, finding a location, and hiring staff are important, but you’ll also have to perform several steps to ensure that your finances are running smoothly. These include:
- Select a name for your business and, if necessary file a DBA form (Doing Business As) to begin using your fictitious firm name if it is different from the legal entity name.
- Will you operate as a sole proprietorship, an LLC, an S-Corp, or a C-Corp? Selecting your business’ entity and filing paperwork according is an important first step.
- Register your business with the Secretary of State.
- File tax information to obtain your business’ EIN Number (your federal tax ID number).
- File for state or county business licenses.
- Register your business with the Department of Taxation and State Unemployment Agency (if you plan to have employees).
Depending on the size and scope of your business, it can feel overwhelming to complete all these steps, and for much of the information you’ll be asked to provide, it can be helpful to have a financial expert who’s familiar with your business and goals to provide consistent, accurate information on all forms.
This is a journey we love to take with our clients. We can help you make decisions about your bank accounts, help you plan and scale your business’ growth, and set up accounting systems that you can maintain for the long haul.
This moment, the inception of your business, is crucial as it determines the course you’ll follow. Even small errors can compound and wind up costing you in the form of IRS and state agencies penalties, not to mention in terms of your reputation with employees and customers. We can help you establish efficiencies right from the start and help you eliminate errors that many new businesses owners make.
Shuttering a Business
The decision to close a business for any reason can be emotionally stressful as well as exhausting. It’s not as if you can simply hang a “Closed” sign and walk away — you still have miles to go before you sleep. And if you don’t follow the proper steps, the business you mean to close can end up becoming an albatross around your neck.
Though states can vary in their requirements, here’s a general breakdown of what needs to happen:
- The first thing to address is the money. You’ll need to close all bank accounts related to the business, especially if more than one person has access to those accounts. These include payroll accounts and tax accounts.
- After all shareholders or members have agreed to the dissolution, you’ll need to file a Certificate of Dissolution with the Secretary of State in any state where the company did business. It may be called Articles of Dissolution. Some states require that taxes be paid first. Without this paperwork, your business could go into default, which becomes public information and may affect your future business dealings. Note that some states, California as an example with its $800 minimum franchise tax, would expect you to pay for each year until you file that Certificate of Dissolution.
- If you haven’t already done this prior to filing your Certificate of Dissolution, you’ll need to file your business’ final tax return as well as your payroll returns, with both the IRS and, if necessary, the state, and they must be marked as final. Nevada doesn’t require income tax filings, but California does, and our firm frequently works with businesses from both states. Note that if these filings aren’t done promptly, it can have financial repercussions. Our firm has worked with clients in California who, for whatever reason, haven’t filed final payroll tax returns, and the state estimated the business wages for year after year, assessing taxes and sending bills that take months to resolve. And if business owners have changed addresses and not notified the California Franchise Tax Board, the agency can retrieve the assessed taxes from any business accounts it finds aren’t closed. Pay particular attention to payroll taxes and make sure no outstanding balances are owed; small business owners may be personally liable for those taxes, and liability protection won’t help in such matters.
As you can see, the steps involved in closing a business can be quite involved, and the stakes are high for getting them right the first time. Minimize the stress inherent in shuttering a business by hiring a certified public accountant (CPA) firm to do this right the first time and ensure as smooth a transition as possible.
Have you dotted all your I’s and crossed your T’s when it comes to establishing or dissolving your business? Contact ustoday and let us answer your questions.