Avoid perils of closing shop

Beverly Bedoe made a go of it.

Her wish for years was to open a business. At 61, she finally did, selling small handmade candles and soaps.

But the recession dashed Bedoe's business dream. What's left, besides scattered inventory, are lessons, the ones she learned when she opened Vegas Soaps and Candles, and perhaps most important, the ones she learned when she closed her shop after six months.

A common mistake for entrepreneurs is to complicate the misfortune of a failed business by failing to prepare for a proper closing. Wrapping up loose ends like licensing, taxes, final payroll, leases, insurance and document storage incorrectly could yield headaches such as government-imposed penalties or even lawsuits that can haunt entrepreneurs long after they have turned to other ventures.

Bigger operators than Bedoe have suffered the mistakes of hasty business closures. She says she had it easy, though, as a sole proprietor. She had to make the tough choice of storing her remaining merchandise or liquidating the high-end offerings for pennies on the dollar.

"I didn't have much time, only a month or a month and a half," she recalled. "I didn't do a lot of sales. I went right to 70 percent off."

By the final three days, Bedoe made more "going out of business sales" signs, and invited wholesalers to come in and make offers on her remaining wares.

"They might come in and say, 'We will give you a $100 for this whole section,' and then you have a choice to make, take the offer or store the merchandise."

Bedoe did a little of both. After selling much of her stock, she saved five storage lockers worth of inventory. She kept her business license with the county current and hopes to reopen in a different location one day.

Renewing -- or canceling -- a business license is one of many details an owner must manage when going out of business. Larger companies must also give proper closure notice to employees under the Worker Adjustment and Retraining Notification Act and the Family and Medical Leave Act, Lionel Sawyer & Collins labor and employment attorney Greg Smith said.

Smith advised keeping those files for seven years for tax purposes. Deciding what to keep or dump from old office computers is also vital.

Smith has a legal "don't do" list, which includes:

■ Don't dispose of documents without properly shredding them.

■ Don't try to avoid paying overdue employee and business taxes, either, even if your doors are shut.

Smith knows about closing a business firsthand. Before joining Lionel Sawyer & Collins a few years ago, he and law partner Malani Kotchka had to shut their law practice, Smith & Kotchka.

Although the brick-and-mortar office is no more, the partners keep their registration active with the Nevada secretary of state's office. That allows the corporation to keep collecting unpaid fees. Smith also continues to file federal corporate income tax returns for Smith & Kotchka.

"We kept all our client files," he said. "And we notified the city of Las Vegas that we were closing our business."

Bedoe suffered a lot of misfortune before closing her shop, including an attempted robbery and a heart attack. Still, she is relieved her closure didn't involve letting any workers go.

Smith said business owners with employees must use extra care when pulling the plug.

"There (are) a whole list of things we look at. Is there going to be a successor employee? Then they will likely keep the employees," Smith said. "If they are just closing, we need to look at employees."

Business owners and shareholders are at a greater risk for legal liability for unpaid wages after a business closure. This is a result of a 9th U.S. Circuit Court of Appeals ruling last year. That court held that some of the upper management and shareholders of the Castaways (formerly the Showboat) could be held liable for the unpaid wages of its former workers. The appeals court found that managers had a certain degree of control over the hotel's operation and closure, and so could be subject to the Fair Labor Standards Act.

"They (the court) said the word 'employers' was broad enough to cover shareholders and managers," he said.

Employers can also find themselves charged with violating the Fair Labor Standards Act for closing a union and reopening as a nonunion shop, Smith added.

"I see that a lot, with small businesses that only have eight or nine employees. They are the ones that think they can get away with it," he said. "The owners think if they close and move across the street, and open with all the same employees, they can be nonunion."

It seems knowing the ins and outs of closing a business are becoming about as important as knowing how to start one. With two months left in fiscal 2010, 5,400 business licensees have notified the Clark County Business License Division that they are closing, Clark County spokeswoman Stacey Welling said.

The county's tally began July 1 and doesn't include companies that may not have notified the county.

The city of North Las Vegas reported 6,957 active business licensees at the end of March. That's down from 8,116 licensees at the end of December 2008. The March data show nearly 500 fewer licensees from year-end 2009, when North Las Vegas counted 7,426.

A closure may not end a business forever. Some entrepreneurs hope to be back when the economy recovers.

Bedoe is one of them.

"I had to close," she said. "But I haven't lost my dream or my goal."

Contact reporter Valerie Miller at
vmiller@lvbusinesspress.com or 702-387-5286.