Liquidating + Winding Down Your Construction Business

If you’ve decided you’re ready to pursue greener pastures and enjoy a much-deserved retirement, and you don’t see a realistic way of selling it, your best option could be to close the doors altogether. Formally, this is known as liquidating or winding down your business.  

While winding down a business is less complicated than selling, you still need to manage the process carefully. Especially since, as a contractor, you have more assets to deal with and more potential legal risks than the average business owner. Here’s what you should know to decide whether liquidating is the right move for you. 

A wind down is the official process of shutting down your construction business. You complete or end your remaining contracts, pay off your outstanding business debts and other bills, cancel your business licenses and permits, and then walk away. If your business has any money left after you pay off all your vendors and other debts, you distribute that between yourself and the other owners. At the end of the process, your business will no longer exist. 

Note that a business liquidation is not the same as declaring bankruptcy. To complete a wind down, you must have enough business assets to pay off all your business liabilities and debts. On the other hand, if a business doesn’t have enough to pay off everything it owes, that’s when someone would consider bankruptcy. 

You want to leave the business quickly—A business wind down is usually the quickest and least complicated way to leave a business. While there is still some work, it’s a process of several months for a construction business versus a sale which can take a year or more from start to finish.  

You don’t think you could sell the business—It isn’t easy to sell a construction business. Often, most of the value comes from you, the owner, because of your existing client and government relationships, industry knowledge, and management skills. Unfortunately, not just anyone can come in and run things. That’s why fewer than 25% of construction businesses that try to sell to an outside buyer are successful, according to Construction Business Owner. 

If you don’t think your business is an attractive candidate for buyers, a wind down could be the only exit option, but read this article about how to sell your construction business first before making that decision.  

There isn’t anyone at your business who wants to take over—Since external sales are complex, construction businesses frequently transfer through internal sales to family members, other owners, or key employees. But if no one internally has the desire or the ability to take over your business, this might not be an option. As a result, the business ends when you leave. 

You want to preserve your business relationships—By going through the wind down process, you end up paying off your debts and handling your remaining contracts as best as possible. It’s not like you shut down overnight and leave everyone hanging. You’ll exit with your reputation intact, should you decide to reopen again in the future or launch a different type of business. 

1. Agree with your business partners 

If you’re the only owner, then it’s only your decision. But if you have other owners and business partners, you need to agree as a majority that liquidation is the right move. 

2. Plan how you’ll pay off your remaining debts 

Make a list of all your outstanding business debts and decide how you’ll pay them and when. You could reach out to your suppliers and let them know your wind down plans and schedule, especially if it means that you’ll need longer than usual to pay. Perhaps they’d be willing to negotiate, like extending one more order of materials on credit so you can complete your last project and pay them in full. 

3. Complete any outstanding jobs 

Decide whether you’ll finish all your remaining construction projects or if you’d like to end them midway, paying refund and contract penalties. 

4. Notify your employees 

Give your employees notice when you plan on shutting down the business. Expect to give them their final paycheck on your last day of operations, including the value of any of their unused vacation days if needed. For key employees you need until the end, you may need to offer them a bonus to ensure they don’t leave early. 

5. Cancel all business licenses, permits, and other registrations 

You should cancel any permits, licenses, registrations, and names for your business to avoid the costs and legal liability of maintaining them. 

6. Dissolve your business entity 

Reach out to the state’s business department where you set up your business entity: LLC, C-Corp, etc. They will tell you which forms you need to submit and what fees you need to pay to dissolve it. If you don’t, you’d still need to pay the annual taxes for keeping the entity open. 

7. Cover your final tax bills

Prepare to file and pay your last year’s business return and any outstanding sales and payroll taxes. The IRS provides a checklist of the final returns you must file to complete the closing. 

8. Save your records 

After shutting down, keep all your business tax and employment records for at least seven years, the end of the statute of limitations. 

Equipment Sales 

Construction businesses have more equipment and more valuable equipment than the average business. A crucial part of your wind down will be to sell everything and maximize the sale price. Be sure to maintain your equipment even if you don’t plan on using it anymore, so everything is ready for buyers. 

If you aren’t sure what your equipment is worth, bring in an appraiser. You have a few different ways to sell, including selling to construction businesses you have relationships with, working with a broker/dealer to find buyers, or putting them up for auction. 

If you’re in a rush to complete your wind down, you may not be able to get full book value for your sale. Starting early gives you more time to negotiate and find the best buyer. 

Warranty Period for Construction Projects 

Your construction projects likely had warranty guarantees, where you are responsible for damages due to defective work years after the project is done. Whether those warranties follow you after shutting down depend on your business structure. 

If you operate as an LLC or Corporation, you set up an extra layer of legal protection between your personal and business assets. Once you shut down the company, the warranty liability should end with your business. However, if you were using a sole proprietorship or partnership, you could still be legally liable for the warranty period with your personal assets. For this reason, most construction businesses operate as an LLC or Corporation. 

Unexpected Costs and Work for Wind Downs 

Getting through the winddown process can be challenging and more complicated for construction businesses as they handle their last contracts, pay off vendors, sell equipment and figure out their legal liability. Skilled employees may look for and accept another job before the work is completed on your now winding down projects. These key employees want job security and a chance to work at a continuing enterprise. You will have to find incentives to keep key personnel on site until the last job is complete. Don’t expect the liquidation process to be quick and instant. 

Shutting down a business is a skill and takes experience. If you‘ve never liquidated a business, it‘s easy to make mistakes. A business professional can talk you through what you need to do to minimize your legal risk while maximizing what you get from walking away. For more information, fill out the form below to contact the authors and experts, Joe Schneid, CPA, CCIFP and Kyle Kamerlander, CPA.