FOR CHRIS HOUGHTON, owner of two eclectic home-furnishings stores in Brooklyn, N.Y., called Trailer Park , December was the worst month his business has ever experienced. Not only is he stuck with about 95% of one store’s unsold holiday merchandise, but now he’s preparing to shutter his second shop.
“Consumers just aren’t buying,” says Houghton. Even before Christmas, sales were down significantly, he says, adding that: “For the last six months we’ve barely been making enough to pay the bills and rent.”
Post-holiday store closings are a rather common fate for small businesses, says David Cornblatt, chief executive of OLS Trading, a liquidation advisory firm in Gaithersburg, Md. Struggling businesses often try to stay open through the holiday season, hoping to get one last shot at profitability, he explains.
But for many businesses, this year’s holiday sales were dismal. From Dec. 1 through Dec. 24, total retail sales, excluding automobiles, fell by 8% year over year, according to MasterCard ‘s ( MA ) SpendingPulse unit, which tracks consumer spending. Corporate-turnaround consultants like Fred Crawford, chief executive of AlixPartners, a Michigan-based advisory firm, predicts that thousands of big and small retailers will shutter in the new year.
Trailer Park’s flagship store in Park Slope, which will remain open.
What many small-business owners will find is that closing up shop requires a lot more work than simply hanging up a ” Going Out of Business ” sign. In fact, the process is rife with legal issues, unexpected costs and other pitfalls. Here are a few pointers to keep in mind:
Notify your creditors
Let your creditors know if you’re about to host a liquidation sale. Otherwise, you could be breaking the law, says Paul J. Rauseo, managing director of George S. May, a small-business management consulting firm in Chicago. While in most states, merchants aren’t required to notify creditors before they go out of business, several states including North Carolina and New York have a ” bulk sales” law, which prohibits the sale of business assets — such as equipment, consumer products and other inventory — outside the ordinary course of business. In these states, if business owners want to liquidate their company’s assets, they’ll typically need to provide written notice to creditors and publish a notice of the sale in a local newspaper or classified ad. If the creditors are owed money, they can make claims on the sale’s proceeds.
Be careful what you sell
Selling items that have a lien against them without the express permission of the lien holder is strictly prohibited, says Rauseo. “If you sell an asset that has a lien on it, you can go to jail.” And obviously, if you don’t own something outright — for example, you’re still making payments — don’t sell that item without consent either.
Honor your obligations
Just because you’re going out of business, doesn’t mean you’re off the hook when it comes to financial obligations. If you owe money to an employee’s pension fund, for example, you’re still required to pay, says Rauseo. The worst mistake you could make is forgetting to pay Uncle Sam. Even though you’ve officially decided to close up shop, you’re still required to pay taxes, he says.