Author
David HillChief Operating Officer
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Whether you’re closing down your business by choice or have been forced to do so, it is an involved process with strict compliance requirements. Where possible, plan ahead so you can get professional advice, fulfil compliance requirements, and give affected parties sufficient notice.
Ways to shut down a business
Why you’re shutting down your business and your business structure are the two key factors that determine how you’ll close your company.
- Sole trader deregistration: If you’re a sole trader, you can contact the ATO to let them know you’re shutting down and apply to close your ABN. You might also need to cancel your business name through ASIC.
- Partnerships: You might be shutting down a partnership because you’ve reached the end of the agreed partnership term, you’re insolvent, or the other partner wants to exit. Check your state or territory’s laws to see if you’re complying with legal requirements. Typically you’ll need to give written notice to other partners and follow the procedure for ending the partnership as outlined in the partnership agreement (where available).
- Voluntary deregistration: If you’re a company and all owners have agreed to deregister, you can proceed with closing down as long as the assets are worth less than $1,000 and you’re no longer carrying on business. You should have no outstanding liabilities and must not be involved in legal proceedings. Lodging an application for voluntary deregistration ceases the company as a legal entity and releases directors from their responsibilities and obligations. Note that ASIC can initiate the deregistration of a company in some cases.
- Winding up a solvent company: You can also shut down a solvent company through a members’ voluntary winding-down process. This is more complicated than deregistration as you’ll be appointing a liquidator to realise the company assets.
- Insolvency processes: Your business could be liquidated following an insolvency process such as voluntary administration, or your business could be wound up involuntarily because of a wind-up notice initiated by a creditor (such as the ATO) through a court.
How to shut down a business in Australia
If you’ve sought advice and you’re confident closing down your business is the best course of action, you’ll want to follow a plan so you address everything you need to.
1. Set a target closing date
Set a realistic target closing date for ceasing operations. This gives you time to plan your closure properly and notify employees, suppliers, partners, and other stakeholders in advance.
2. Notify employees
Notify your employees well in advance so they have sufficient notice. Check to make sure you’re complying with notice requirements. How much notice you need to give employees will depend on how long they’ve worked for you and the type of employee they are. If you’re unable to provide sufficient notice, you can also pay out the notice.
3. Notify suppliers and partners
Contact suppliers and partners in advance to inform them your business is closing. It's important to give them notice so they're aware of when their services or products will no longer be required.
4. Notify customers and complete outstanding jobs
When closing your business, it's vital to inform your customers clearly and professionally.
If you’re a major supplier or an important partner, letting customers know can assist your customers with their own planning. In other cases, giving customers more notice could boost your profits until you close down and allow you to sell off all your stock. You could hold a closing down sale and take advantage of the lead-up time to closing down to get rid of stock.
Here are a few simple ways to get the message across:
- Share an announcement on your website.
- Display a sign in your physical store.
- Use your regular communication channels, such as email newsletters or social media platforms.
- Contact key customers directly by phone if a more personal approach is needed.
Choose the method that aligns best with how you usually interact with your customer base.
5. Cancel your lease
If you have a lease for your office or site, remember to end your lease agreements by giving notice to your landlord. If you can’t break your lease, you could check to see whether you can sublet your space or find someone else to take over the lease.
6. Collect accounts receivables
As you plan to close your business, it’s a good time to start chasing down your accounts receivables and make sure your customers and partners pay on time. Having the accounts receivables resolved before your operations are wound down helps ensure you can pay off any outstanding bills and debts before closing down. Consider using collections services for older debts or even options like invoice factoring to help recover hard-to-collect debts.
7. Liquidate stock and realise business assets
Stock, tools, equipment, machinery, property, vehicles, furniture, IP, and licenses could be some of the assets you can liquidate to realise your business’s assets. As part of your winding down, you need to pay your bills and settle your debts, and selling your assets will help you do so.
8. Distribute remaining cash and assets
If you have leftover cash and assets, you could distribute these to the owners or shareholders of the company. Usually, you’ll need to have paid employees, creditors, and ATO everything owed before distributing any remaining cash or assets.
9. Finalise tax and legal obligations
Before closing your business, it’s essential to finalise all legal and tax obligations to ensure compliance and avoid future liabilities.
- Inform the Australian Taxation Office (ATO) so you're no longer responsible for ongoing tax reporting or payment obligations.
- If your company’s annual review fee is approaching, ensure ASIC receives and processes your deregistration application at least two weeks before the due date. Late applications may result in the full fee still being payable, even if the company is no longer active. For faster processing, consider submitting your deregistration application online.
- Company directors must meet their legal obligations, including settling outstanding debts to creditors, employees, and the ATO. Failure to do so can result in personal liability.
- Lodge your final tax return and complete any remaining tax reporting requirements before officially closing down your business.
- Notify the Australian Business Register and cancel your ABN and business name once your tax affairs are in order.
10. Retain business records
Remember you’ll need to retain your business records, typically for five years after the preparations of the record or the transaction. These include customer records, employee records, and financial reports.
11. Tie up loose ends
When winding up your business, you should also:
- Close your business bank accounts after submitting your final ATO lodgements.
- Cancel utilities such as phone, electricity, water, and internet.
- Set up mail redirection with Australia Post.
- Terminate your website hosting and domain registrations.
12. Get professional advice and emotional support
Shutting down your business can be a complex process requiring careful planning. Seek legal advice before you shut down to make sure it’s the right option for your business. If you’re certain closing down is the best alternative, take time to plan it properly and ensure you’re complying with the legal requirements.
Closing a business can take a significant emotional and mental toll, especially for small business owners who have invested years of hard work into it. It's important to seek support - from trusted friends, professional counsellors, or mental health services - so you don’t have to navigate the stress and uncertainty alone.
Is shutting down your business the right option?
Challenging profit margins, compliance, declining interest in running a business, and strong competition are some of the reasons you might be thinking about shutting down your business. Always seek advice before you commit to closing down, because turnaround strategies you hadn’t thought of - such as small business restructuring - could help bring your business back to profitability.
Mackay Goodwin are industry leaders in providing advice to businesses in strife. If you’re exploring closing-down options for an insolvent business, we can help with expert advice. Contact us today for a discussion or visit our website to find out more.
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