Most entrepreneurs who start new businesses understand that failure is a significant possibility, but optimistically hope that their startup will defy the odds and become massively successful. No matter how hopeful you are – or how skilled you are as an entrepreneur – a failed startup is never more than a few bad decisions away.

A startup failing isn’t necessarily a reflection of your abilities, but it can hurt both your ego and your wallet. How do you recover from a failed startup and maximize your chances of success the second time around?

Make the Final Decision

Before you get too far into the process, you’ll need to finalize your decision and take the actions necessary to dissolve your business and prepare for the consequences of losing it. Most businesses aren’t permanently closed because of financial difficulties or some threatening external event; rather, entrepreneurs make the decision to close a business once they realize there’s no way out.

If your business is failing, that doesn’t necessarily mean it will continue failing in the future. A struggling business can recover by means of revitalized marketing strategies, cost cutting measures, new product development, rebranding, and other strategies. But if you’ve already tried these and you’re out of options, or if you’re ready to throw in the towel, it may be time to make the final call.

This is a major decision that you can’t easily walk back, so make sure you’re in a clear-headed, unemotional state of mind when you make it – and make sure you have all the information necessary to ensure you make a logical call.

Audit Your Finances

As you prepare to close your business, closely audit your finances. Take inventory of your standing debts as well as outstanding accounts and speculate which of your assets can be easily liquidated. If your business is in a difficult financial position, closing the business can be complicated; in some situations, the right move may be to declare bankruptcy.

According to attorney Rowdy G. Williams, “People sometimes see bankruptcy as a singular monolith, but the reality is that there are many types of bankruptcy. The type of bankruptcy you choose will impact how much debt will be discharged, and how long the process will take.”

Working with a lawyer, you can determine whether bankruptcy is the right move for closing your business, and if so, which type of bankruptcy would be most appropriate. Otherwise, you’ll need to keep a close eye on your assets, liabilities, and transactions as you begin to shut the startup down.

Facilitate an Organized, Orderly Shutdown

An organized, orderly shutdown is going to be quicker, less stressful, more legally sound, and easier on the people around you. Accordingly, you owe it to yourself and to everyone else in your business to remain as structured and professional as possible during the shutdown.

Work with decision makers.

Consult with major decision makers in your business if you haven’t already. Depending on the structure and nature of your business, you may need them on board with your decision before you begin to follow through.

Collect outstanding accounts.

At some point, you’ll need to collect on outstanding accounts. This can help you reconcile your final finances and receive some money to settle any outstanding debts.

Inform your staff.

Think carefully about how you want to inform your staff. In most cases, it pays to let them know as early as possible and as sympathetically as possible. Give people time, direction, and resources so they can properly process what’s happening and set a course for their futures. Make sure you explain your reasoning for shutting the business down as well.

Inform your customers.

You’ll also need to inform your customers. Give them full instructions on how they should handle this, and consider recommending alternative product and service providers who can fill their needs.

File the necessary documents.

Depending on your type of business and where it’s located, you’ll likely need to file some paperwork to formally dissolve or close your business.

Plan for taxes.

Even if your business is closed, you’ll likely still have some tax obligations. Consult with a tax advisor to ensure you’re planning for those taxes properly.

Cancel your licenses and permits.

If you have any licenses or permits for your business, now is the time to cancel them.

Distribute assets and close accounts.

Finally, you’ll be ready to make a final distribution of assets and close any of your active accounts.

Initiate a Postmortem

As you begin delving into the final closure of your startup, or after you’re all done, consider initiating a postmortem analysis. Essentially, your goal is to figure out what went wrong so that you can prevent something similar in your next venture.

What was the root cause of your business’s failure? And what were the intermediate causes? Don’t make any snap judgments. Dig deep into the details to see if there’s anything you might have missed.

These are some of the best places to find clues:

Financial documents.

A company’s finances can tell you nearly everything about how it operates. You can quickly identify any financial strategies that disrupted your business and pinpoint moments in time when momentum began to shift.

Interviews and discussions.

It’s also a good idea to conduct interviews and hold discussions with other people who were active in your business. Leaders and decision makers can give you a high-level perspective of what they think went wrong. Lower-level employees may have critical ground-level insights that leaders might lack.

Major decisions and resulting outcomes.

Focus on major decisions that you made throughout the course of your business and whether you could have made an alternative decision in each scenario that would have turned out differently. Hindsight is 20/20, of course, but this exercise is valuable in helping you make better decisions in the future.

External threats.

Review any external threats that played a role in the demise of your business as well. New competitors, economic turmoil, and changes in market dynamics can all play a role in compromising the integrity of your startup.

Take Some Time (If You Can)

Losing a startup you loved and worked so hard on can be incredibly difficult. Just as you wouldn’t want to return to work after losing a loved one, you shouldn’t immediately dive into a new venture the day your first business closes. Even if you feel okay with the situation, it’s wise to take a few weeks, or even a few months to process what happened, relax, and reset your frame of mind so you can start your next venture on an even footing.

Take Accountability (But Go Easy on Yourself)

You’ll greatly increase your chances of success if you can take full accountability for all your decisions and actions that may have contributed to the failure of your business. Yes, there were variables and factors outside of your control, but focusing on them isn’t going to help you succeed. You can only control your own actions and behaviors, so this is where the locus of change needs to be.

At the same time, don’t beat yourself up. Even the best entrepreneurs in the world experience failure and make egregious mistakes. What separates them from other entrepreneurs is that they learn from them and move on.

Consider Your Future

You don’t have to start a new business. You could also transform your old business idea into something new, start a new career, or take your experience and find a position that complements your new skill set. Think critically about all your options before you decide to move forward.

Prepare

If you do plan on starting a new business, take some time to prepare.

Classes: Many classes can help you cultivate skills or new knowledge to become a better entrepreneur.

Research: You can also start researching new possibilities, and potentially drafting business plans for your new ideas.

Connections: Don’t forget to network! Ongoing networking habits can help you find new mentors, partners, investors, employees, and even customers.

It’s tempting to think of the failure of your startup as the end of a journey. But it’s also the beginning of a new one. If you can fully and properly recover from a failed startup, you can use your new knowledge and experience to start something even better.

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