A small business may become inactive in one of two ways. Your business may become legally inactive if you don’t file required forms or if business licenses or permits expire. Alternatively, even if your business is legally active, you may come to a point where you’re not actively promoting your business or generating revenue.
At this stage, you’re at a crossroads: you can either wind down the business or relaunch it. In this article, we’ll explain what it means for your business to be “inactive” and what to consider when deciding whether to close down or continue a business. If you decide to relaunch, we’ll give you some tips on successfully restarting a business.
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Is Your Small Business Inactive?
A business may become inactive if it ceases to generate revenue and you don’t actively try to acquire customers and make sales. However, a business can also become legally inactive. There are two questions you need to answer to determine if your business is legally inactive:
- If you are an LLC or Corporation, are you listed as “inactive” with the Secretary of State’s office?
- For any type of business, have your business licenses or permits expired?
If the answer to either or both of these questions is yes, then you have a legally inactive business.
The Secretary of State in each state oversees the formation and legal status of corporations and LLCs. The Secretary of State may set your business’ status to inactive if you fail to file required reports or to pay required fees or taxes. Business attorney Julian Cordero says that “Each state has its own guidelines with regards to business formation, so my first piece of advice is to check with your local secretary of state office to see if your business is still listed as active and see if you have to file any particular paperwork or pay any fees.”
Even if you are listed as active with the Secretary of State’s office, you can’t operate without valid business licenses and permits. Not all businesses need licenses or permits, but some, such as healthcare businesses, construction businesses, and daycares, do. If your permits or licenses have expired, you will have to reapply with your county clerk or the appropriate government office before restarting your business. To get help with business licensing, visit BusinessLicenses.com.
Restarting a Business vs. Closing Down and Starting from Scratch
If your business has become inactive (legally or from months or years of inactivity), you may find yourself wondering, Should I continue with the existing business entity or close it down and start over with a brand new business? How you proceed has important financial, legal, and personal consequences.
There are three main incentives to continue an existing business:
- It’s easier to raise money and get financing for an established business than for a new business. Finding a startup loan is very difficult, and raising venture capital isn’t an option for many small businesses. The longer you have been operating, the easier it is to convince a lender or investor to give you funding so you can grow.
- Certain organizations, such as industry associations and even the Better Business Bureau, require you to be in business for some time before you can join. The legitimacy that these memberships bring to your business can help fuel business growth.
- Customers like familiarity. There are definitely times when rebranding can breathe fresh life into a struggling business, but there’s also value to keeping some things consistent. One study showed that customers trusted a business 30 % more when they had a consistent customer experience (i.e. familiar staff, similar product offerings, etc.).
Sometimes, it’s also just easier to retain your current business entity. For example, do you just want a name change? In that case, it’s often easier to keep your current business entity and simply get a new DBA. A DBA or “Doing Business As” name, which can be obtained through your county clerk, allows you do business under a trade name (e.g. “Bob’s Widgets”).
On the flip side, there may be compelling reasons to close down the existing business and start anew:
- Are you changing the equity or ownership structure of your business? In this case, it may be easier to create something new rather than negotiate and rework existing agreements.
- Does your business have a bad reputation? If people associate your business with something negative, starting from scratch can be a good decision.
- A business partnership turns sour. In a partnership, the acts of one business partner can bind all partners legally, so if you’re facing conflict with your partner(s), it may be a good reason to exit the business and start fresh.
- Is there a bad contract you want to avoid or a thorny legal issue that’s affecting your current business? In that case, says Attorney and TV personality Elura Nanos, your business is still on the hook even it’s been inactive for awhile. “Any contracts, debts, or other obligations would still obligate your business now, just as they did before.” Starting from scratch may relieve you of the obligation, but you should tread carefully and consult an attorney for advice.
After weighing the pros and cons, if you decide to close shop, make sure you get professional help. For example, if you are a Corporation or LLC, you’ll need to file articles of dissolution, which an online legal service such as LegalZoom can help you with. Consulting a business attorney is a good idea as old debts, contracts, and obligations can come back to haunt you if you don’t wind down a business correctly.
4 Tips For Restarting A Business
If you decide to restart an existing business, here are a few things to keep in mind.
1. Put On Your Startup Shoes (Again!)
When restarting a business that’s been inactive for awhile, you basically get back into startup mode. You will need to adopt the attitude of a startup owner. That means a willingness to experiment, to try and fail and try again, and to work long hours. In addition, if your business failed the first time around, you will need to take a long hard look at what happened and figure out how to avoid the same mistakes again.
2. Reconnect With Old Customers
Perhaps the most challenging part of restarting an inactive business is rekindling your relationships with customers. When your business has failed or gone under wraps for a long time, you may feel embarrassed or awkward to reach out to your old customer base. However, to win back old customers, honesty is the best policy, according to Marilyn Arriaga, owner of Social Butterfly Marketing & Goody Bags.
After medical issues led Arriaga to put her business on hold, she says she was “honest and transparent with clients about what was going on behind the scenes. I was even able to acquire a few of them back as clients by offering them some free services in the beginning.” The lesson here is, don’t be afraid or embarrassed to explain what led to the business failing or going inactive. Customers are more interested in knowing what positive changes are in store this time around.
Offering discounts or freebies like Arriaga did can remind customers why they liked shopping at your business in the past and bring them back into the fold. Web Marketing Consultant and Copywriter James Mawson says that not offering a discount or freebie is a lost opportunity. “Your first contact with your old customer list is a crucial moment. You are wasting a big opportunity if all you do is inform them you are reopening. Accompany it with a strong offer. Making the offer exclusive to these old customers will give it a higher perceived value. Giving the offer a time limit will help convert interest into action.”
3. Rewrite Your Business Plan
When restarting a business, you’ll need to take a fresh look at your business plan. Did competition from a nearby business give you trouble the first time around? If so, how have you adapted your product or service this time to compete better? Was growth slower than expected? Try to make more realistic projections this time.
A business plan is important for both gathering your own thoughts about the business, as well as for raising venture capital and getting loans. Fortunately, writing a business plan doesn’t need to take weeks. There are many business plan software tools that can help you create a business plan in a few hours such as LivePlan.
4. Make Any Necessary Internal Policy Changes
As you get ready to re-launch your business, there may be some housekeeping measures that you need to take care of. For example, Nanos says that you may have “new pricing structures, new employment policies, or a new scope of business.” You should clarify those changes as much as possible. If you’ll be revamping your pricing, for instance, make sure all your existing customers know about it in an email and that you put clear signage throughout your store. If you have new employment policies, don’t forget to update your employee manual. Whatever the changes, says Nanos, if you’re going to do things differently, be clear and public about your new policies.
Less public changes may be a new d/b/a name if you’re rebranding or a new bank account.
Restarting a business after it becomes inactive is hard work. It often takes as much or even more blood, sweat, and tears than starting the first time around because of the explaining that you might need to do to customers, employees, and vendors.
Nayita Wilson, founder and CEO of PR firm NVisions Communications & Consulting.com gives some good advice. “Ultimately, make sure that you don’t let past mistakes or problems hold you back from growing your small business. Forget about past failures, and position your brand as strong, viable and phenomenal!”