It's easy to overlook one part of the closure process. That's navigating the business contracts and obligations you've agreed to fulfill, especially those you put in place before planning to close your doors.
For many businesses, these obligations tend to fall into one of the following categories:
Did you form any agreements with vendors or suppliers to purchase a fixed amount of goods for an established period of time?
If so, you’ll need to spend time reviewing the terms of those agreements. Find out if there are penalties for breaking the agreement. If there are, see if you can avoid them in the event of your business’s closure. If a clause like this doesn’t exist, reach out to the other party and ask if you can come to a mutually agreeable solution.
Contracts to perform
Did you sign contracts to provide goods or perform services for a specific period of time? If so—and you can't fulfill the obligations before closing your business—review the terms of those contracts. Find out how you might be penalized for non-performance when you close your business.
|Customers may be understanding and allow you to terminate your contract without imposing a penalty.
Contact each affected customer individually. Try to negotiate an early termination of your contract or a resolution that’s favorable to you both so you can avoid a future lawsuit for non-performance.
Commercial leases on vehicles
Most lease agreements outline the steps you’ll need to follow for termination. Vehicles lease arrangements often include terms that allow borrowers to return vehicles before the contractually defined date. But, often, this option includes a significant termination fee.
Another option could be to buy your vehicles from the leasing company and sell them to a third-party buyer. This transaction may be taxable, and some states set limitations on the time in which a vehicle can be bought and sold, so it’s important that you do some research and weigh your options carefully before deciding on a course of action.
Leases on property
Like vehicle lease agreements, your property lease arrangements should include terms that allow you to vacate the property before the end of your contract. Some property owners will require you to pay the entirety of the lease before vacating. Others may reduce your responsibility if you or the landlord is able to find a new tenant. Still others may allow you to pay a termination fee to end the contract early. Most require at least 30 days’ notice, regardless of the option that’s chosen.
You may have signed up for property, vehicle, or other insurance policies that will extend far beyond the closure of your business. In most instances, insurance companies will allow you to terminate your policies early. Many will also reimburse you for any unused portion of prepaid premiums.
Prepaid utilities or services
Most utility and service companies will allow you to terminate the contracts you hold with them and receive a reimbursement for any deposits or early payments that you’ve made.
As a business owner, you likely have contracts that’ll require your attention before you close. Take time to review them, find out what’s at stake, and understand the options you have for terminating them.
If you need support, we can help you find an attorney who can help you navigate these contracts, and in some cases, renegotiate them to save you a significant amount of money. Click the Connect button below to get started:
One of the most important tasks on your to-do list is informing your creditors of your impending closure. In our article, How to Report Your Closure to Your Creditors, we share strategies that can help you through this cumbersome process.
Visit your owner’s portal to access our guides, checklist for closure, and the articles you need to complete the actions that are required to dissolve your business.