Dissolving your business instead of selling? Don’t forget the costs

Dissolving instead of Selling Your Business… Don’t forget the Cost of Dissolving a Business


I see it every day, business owners who do not want to discuss selling their business (baby) ever, and when I tell them they only have three choices, sell, bankrupt or dissolve their business. Since they think selling is too much work (despite probably spending 30,000 hours building up the asset that is now their business), they choose “dissolve,” thinking it is fast and has no cost… They are wrong. And all are surprised to discover the costs of dissolving. In my experience, an incorporated business that has been around for five years or more must budget a minimum of $20,000 in time and costs to properly dissolve.

Closing a business can involve a variety of costs, and these can differ significantly depending on the type and size of your business, your location, and the specific circumstances of your situation. Here are some of the potential costs involved:


Professional Fees: You may need to hire attorneys, accountants, or other professionals to advise you on the process and ensure everything is done correctly and legally. This can often be one of the highest costs.


Tax Obligations: Businesses may have outstanding taxes to pay to local, provincial, or federal authorities. In addition, depending on the jurisdiction, some places have a "business dissolution tax" or "franchise tax" that must be paid when a business is closing.


Debt Repayment: If your business has any outstanding debts, these must be paid off. This can include anything from loans and credit card balances to money owed to suppliers or other creditors.


Employee-Related Costs: If you have employees, you may need to pay severance, accrued vacation time, or other benefits. You must also consider costs associated with laying off employees, such as outplacement services or legal fees related to employment contracts.


Lease Termination Costs: If your business rents office, retail, or other space, terminating your lease early could involve costs. This could include paying the remainder of your lease or a penalty for early termination.


Asset Liquidation: If you have any business assets to sell, such as equipment or inventory, there could be costs associated with this. These might include the cost of a liquidator or auctioneer, transportation and storage costs, or costs associated with selling items below their purchase price.


Dissolution and Notification Costs: Depending on where your business is incorporated, you may need to file a formal dissolution of your business entity with the provincial and pay an associated fee. In some jurisdictions, you might also be required to publish a public notice of your business's closure in a local newspaper, which could have an associated cost.


Costs Associated with Outstanding Contracts or Agreements: If your business has any outstanding contracts or agreements, you may have fees associated with terminating these.


While closing a business has costs, there may be ways to mitigate these, such as negotiating with creditors, landlords, or other parties. You should consult with a business advisor, attorney, or accountant to understand the potential costs and options available to you.

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You Don’t Need An Exit Strategy; you need to build a business that will eventually not need you.