Let’s face it, not every startup succeeds. No matter how much you want to avoid joining the dead-pool but as a startup founder, if you have seen the warnings and realised it’s time to end, then end it the right way.
Generally, there are two ways this situation can turn out. You can handle failure with grace and consideration for all stakeholders or, it can be handled so poorly that you will not be able to raise money for a next venture or find a job in the startup world.
The decisions you make while unwinding your business are very important for your ability to walk away bruised, however, with your head held high.
For founders, here are some key considerations to keep in mind while winding up a startup.
Consult your board members, shareholders and investors
It is crucial to consult the people who have advised, funded, and supported your startup before you decide to shut down. Even during the contemplation stage, you should consult with them for the best course of actions. While they may be disappointed, they are there to help you wind up appropriately. Consulting your board members, shareholders and investors allows transparency, and putting their input to action means you are still loyal to their opinions even if your product didn’t work out.
Shut down the right away
Do you owe money to creditors? If so, can you work out deals to settle the debts? Do you owe money or refunds to your users? Understand your assets and whether you can sell them. Resolve all outstanding debts with business associates and close out vendor and supplier accounts.
Consult an attorney for any possible considerations. Also, don’t forget to properly terminate your business in the eyes of both – everyone you have done business with, such as, customers, suppliers, vendors, and more and the place where you formed it. Regarding the former, provide notice and the date you are ceasing operations. Regarding the latter, make sure you file the necessary forms. Your state may have statutory requirements that must be followed, so check with your state. Overall, make sure to avoid any lingering confusion regarding whether you are an active business.
Close all your business bank accounts, credit cards, and other outstanding business debts.
Dissolve your business
If you have been doing business as a corporation or limited liability company, you need to officially dissolve your entity so that you are no longer liable for business taxes or filings in your state. Officially dissolving your business also puts creditors on notice that your entity can no longer incur business debts.
If your business is operating as a general partnership or sole proprietorship you may not be required to formally dissolve your business, but it is still a good idea to notify the government and creditors of the change.
Consult your accountant
This is important on two levels. First, you will want to understand the tax obligations of your company. You may have corporate taxes, payroll taxes, wages-due, outstanding debts. Remember, tax obligations may survive bankruptcy. Further, you may need to provide proof to the state that the business has paid all the taxes owed before you are allowed to dissolve a company. Second, you will want to understand your own tax implications. Don’t be surprised come tax time. This is one area that you will want professional advice.
Cancel registrations, permits, licenses, and business names
To protect your finances and reputation, ensure that you cancel all licenses and permits that you will no longer need. If you have registered under an assumed, or trade name, other than your own name then you can cancel that business name registration with your local government.
Be true to your team
Telling your team that it’s game over is gut-wrenching. But what you want to avoid is providing a vague, non-specific reason for the shutdown. Be as clear as possible about what happened, where things stand and how this will affect them. If they can’t articulate what happened to others, you didn’t do a great job articulating it to them. If possible, offer people any help that you can. That might mean opening up your network to help them find a job, or at least providing a glowing reference.
Preserve your records
Don’t just toss out your documents and delete your files. Retain your documents and electronic files. Put them in a safe place. If a legal issue comes up, and you failed to save the related documents, you may quickly find yourself in hot water.
Don’t forget to thank your customers
Your team and investors may represent dozens of relationships, but your customers likely represent hundreds or even thousands – many of which you didn’t even realize you had. These are the people that will likely support you in the future, so letting them know how much you appreciate them is important. If possible, offer a final gift and make it personal. People will remember the offer – even if they never take you up on it.
If you’re too broke to rest, take a job that requires as little thought as possible to keep the bills paid while you take the time to clear your head.
And when the dust settles, the best way to put the past behind you is to focus on the future. Put all of that nervous energy into building something great and making use of what you learned.
There is always a next time.