Things happen,...you may experience an illness or accident that keeps you from working so you need to shut down your business. You may go through a divorce and be forced to sell in order to make a property settlement. Maybe you've accepted a job that will pay you more than your business ever could. Or, as is commonly the case during this economic downturn, you may face financial difficulties that make it impossible to continue operations. Let's assume that things aren't as bad as needing to talk about bankruptcy. What do you do now?

Just because you're shutting down the business doesn't mean it's as easy as closing the lights. If you're not selling the whole business (to be discussed in Part 2), but rather liquidating your inventory and closing up shop, you need to follow an orderly approach so you can maximize the money you'll be able to salvage and avoid problems with creditors and the government. Here are some things you need to do:

Handle Inventory Your inventory may be the single largest asset you have to sell off when shutting down a business. You face two basic choices:

• Selling items to consumers at discounted prices (often greatly discounted) in order to get rid of everything, or nearly everything.
• Selling all of your inventory in bulk, usually to another business owner or two, or to a company that buys in bulk from distressed businesses.

Your decision on the course of action depends on how fast you need to move merchandise and how much effort you can spend on this activity. You may realize a greater pot by selling to consumers, bit by bit, in a going-out-of-business sale. This can take four weeks, eight weeks, or more. But for a fast closeout, you'll want to dispose of your inventory in a bulk sale.

Selling to consumers. Usually, you'll start with discounts of 20% to 25%, working up to discounts of 50%, 70% or greater as you near the end of your liquidation sale. Instead of selling through your own site, consider specialty sites designed for liquidation.

Selling in bulk. You may sell in bulk to a liquidation company or surplus inventory liquidator, a wholesaler that specifically buys overstock and liquidated inventory. Some liquidators only handle certain types of goods, such as electronics or apparel, so look for a liquidator that can handle your type of merchandise.

Settle Debts
Going out of business doesn't relieve you of your obligation to pay your outstanding bills. Settle up with your creditors; use the proceeds from your inventory sales to make good on what you owe.

If the business doesn't have enough money to pay outstanding debts, understand what the legal ramification may be. If you've operated your business as a sole proprietorship or partnership, you continue to be personally liable for outstanding business debts. (If you're a partner, you are jointly and severally liable, which means a creditor can ask you for all of the money owed. If you pay up, you can seek contribution from the other partner or partners.) If you've been operating as a limited liability company or corporation, creditors can only satisfy their debts from business assets; if these assets fall short, they're out of luck.

Close Down Accounts
You don't have to maintain bank accounts, credit cards, and other things that you no longer need. Here's a checklist of some of the items you can close out when you close up:

• Business bank account
• Business credit and/or debit card
• PayPal account. If you continue to maintain this account (perhaps for personal reasons), be sure that the account is no longer tied to your now-closed business account or credit card.
• Warehouse/storage space

Attend to Legal Details
After you've sold all your merchandise, paid your debts, and closed your accounts, don't forget Uncle Sam (and your state). All businesses must, of course, make sure they have paid any outstanding employment and income taxes owed to the IRS and filed all necessary returns. The IRS has a handy closing a business checklist of the forms you should file and other reminders to complete your closing.

If you have a corporation, you are required to notify the IRS of the corporate dissolution or liquidation by filing Form 966 (PDF file). This action should be taken within 30 days of adoption of a plan of liquidation.

If you have an entity created under state law - a corporation or a limited liability company - you'll need to notify your state that the entity is shutting down. This means filing articles of dissolution (there's a cost involved here for state filing fees and fees for an attorney or a self-incorporator site, such as LegalZoom.com or BizFilings.com if you do it yourself).

To be able to dissolve your entity, you must settle any outstanding tax bills with the state. If you fail to go through the proper channels, the entity will continue to accrue annual fees to the state, making it increasingly costly to close up.

Consider working with an attorney to advise you on winding up your business so you don't overlook anything.