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All founders are, of course, highly motivated and firmly determined to succeed. Unfortunately, things don’t always work out that way.
There are many reasons for failure, and most of them are not rooted in the founder as a person.
And sometimes, the second attempt goes better! After all, you’ve gained a great deal of experience.
Reasons for Giving Up Self-Employment
There are plenty of stumbling blocks, and not all of them can be removed, for example:
- The product or service ultimately does not meet real demand. Perhaps the target group was not addressed correctly, the offer is not visible enough on the market, or in these fast-moving times the target group’s needs have already changed again.
- Financial resources are simply not sufficient to bridge longer “dry spells.”
- Permits are missing, incorrect contracts were concluded, or bookkeeping and tax errors occur.
- Suddenly, there are differing visions within the founding team about how the company should move forward.
Roles and responsibilities are not clearly defined, leading to conflict.
Problems can no longer be resolved because “positions have hardened.” - The family situation has changed and is no longer compatible with self-employment.
- Last but not least: The challenges of self-employment were underestimated. Stress, time pressure, and responsibility can quickly lead to overwhelm.
What Needs to Happen Now?
Whatever the reasons for closing the business: If you have to give up self-employment, there are several important legal, tax, and organizational aspects to consider.
The details depend, of course, on whether you are a sole trader, freelancer, or, for example, managing director of a limited liability company. Here is an overview of the basic facts:
- Deregistering the Business (if applicable)
If you operated a registered trade:
- Deregister at your local trade office (Complete the “business deregistration” form)
The trade office will automatically inform:
- The tax office
- Chamber of Industry and Commerce / Chamber of Crafts
- The relevant employers’ liability insurance association (if applicable)
As a freelancer (e.g., doctor, consultant, designer), you do not need to deregister a trade — informing the tax office is sufficient.
- Inform the Tax Office
You must notify the tax office that you are ceasing your activity.
Important:
- Final VAT return
- Final income-surplus statement (cash-basis accounting) or balance sheet
- Final income tax return
- Possibly taxation of a closing profit (A taxable profit may arise if you sell fixed assets such as machinery or company cars, withdraw inventory, or dissolve reserves.)
For larger businesses, the formal “cessation of business” may have special tax consequences (e.g., preferential taxation rules). Consulting a tax advisor is strongly recommended.
- Terminate Contracts
Review and terminate in good time (observe notice periods):
- Lease agreements (office, shop, workshop)
- Leasing contracts
- Insurance policies (e.g., business liability)
- Telephone/internet
- Software subscriptions
- Maintenance contracts
- Supply contracts (both directions)
- Clarify Social Insurance Matters
- Inform your health insurance provider (switch to employment? voluntary statutory/private insurance?)
- Clarify pension insurance (important if mandatory contributions applied, e.g., in crafts)
- If unemployed: register promptly with the employment agency
- Outstanding Receivables & Debts
- Collect outstanding payments
- Settle open invoices
- Review installment agreements
- Consider insolvency proceedings if unable to pay
If the situation becomes critical, the Federal Employment Agency or debt counseling services can offer support.
- Chamber of Industry and Commerce / Chamber of Crafts
If you were a member, check whether contributions are still outstanding.
Membership usually ends automatically upon deregistration of the trade.
- Employees (if applicable)
If you had employees:
- Carry out terminations legally correctly
- Observe notice periods
- Compensate remaining vacation days
- Issue employment references
- Properly deregister social security
Note: If you had more than 10 employees, employment protection legislation may apply.
- Retention of Business Documents
Even after closing the business, statutory retention periods apply (§ 147 AO, § 257 HGB). You must ensure that relevant documents are properly archived.
- Additional Points Depending on the Situation
Limited liability company (GmbH/UG)?: Deregistering the trade alone is not sufficient — a formal liquidation or possibly insolvency proceedings are required.
Part-time self-employment?: You may only need to inform the tax office and trade office.
Personal insolvency?: If there are significant debts, professional advice may be advisable.
Recommendation: From a tax perspective in particular, closing a business can be complex. If there are assets in the business (car, reserves, inventory), an appointment with a tax advisor is strongly recommended.
Do Grants and Subsidized Loans Have to Be Repaid?
Whether subsidies must be repaid depends heavily on the specific funding program and the conditions stated in the approval notice.
Here are the most important cases:
- Start-Up Grant (Federal Employment Agency)
Generally no repayment if:
- You genuinely pursued self-employment
- No false statements were made
- The funding was properly approved
Repayment is only required in cases of fraud, false information, bogus self-employment, or misuse of funds.
- Entry Allowance (for recipients of basic income support)
- Also generally no repayment if the business is properly discontinued.
- Repayment only in cases of breaches of obligation or false statements.
- Subsidized Loans (e.g., via development banks)
Important: Loans are not grants.
They must generally be repaid — even if you discontinue self-employment.
You may be able to:
- Apply for deferment
- Adjust installments
- Consider refinancing
- Investment Grants (e.g., for machinery, digitalization)
Repayment obligations may arise if:
- A required retention period (often 3–5 years) is not observed
- Funded assets are sold too early
- The business is closed before the retention period expires
- Funds were not used properly
- Proper documentation cannot be provided
The specific requirements are stated in the approval notice.
Can You Receive Unemployment Benefits?
Yes - in principle this is possible, but it depends heavily on your previous insurance situation.
- Unemployment Benefit I
You may be entitled if you:
- Paid into unemployment insurance for at least 12 months within the last 30 months
- Register as unemployed in good time
- Are available to the labor market
- Basic Income Support
If there is no entitlement to Unemployment Benefit I or it expires, you can apply for basic income support at your local job center if you:
- Can demonstrate financial need
- Are capable of working
- Have your habitual residence in Germany
- Avoiding Waiting Periods
Important in both cases: observe deadlines!
- Register as seeking work at least three months before ending your activity
- Register as unemployed no later than the first day without income
Otherwise, waiting periods may apply.
If you voluntarily give up self-employment without a valid reason, a waiting period of up to 12 weeks may be imposed for Unemployment Benefit I.
Valid reasons may include:
- Economic unreasonableness
- Health reasons
- Lack of business viability
Special Case: Insolvency
If self-employment ends in insolvency, much depends on your legal form and the level of debt.
Unlike liquidation, which aims to dissolve a company completely, insolvency does not necessarily mean the “end of your professional existence.” It is a legally regulated restructuring or debt relief procedure and may even allow the company to be revived and continued.
Because this topic is very extensive — not least due to numerous legal regulations and implementation options — we refer to the website of the Federal Ministry for Economic Affairs and Climate Action, which provides detailed information on the subject.
Starting a Business as a Learning Phase: The Beginning of Entrepreneurial Maturity
We know: Starting a business is a matter of the heart — and failure is painful!
Sometimes, with support, it can still be avoided. And if not: Ending something does not mean giving up; it means continuing in a different way.
You may want to take a look at our related articles — they could provide a small motivational boost!
A Crisis Is Looming: How Can I Save My Company?
Entrepreneurial mistakes only develop into a crisis if they are not recognized and corrected.
The Second Attempt: How to Make a Successful Restart
You’ve already started a business once — and even if it wasn’t successful, you gained experience and will evaluate situations differently and handle them better today than before.
Failure is the best thing to start with
Business coach Stefan Merath says: “Founders should already have enough reserves for a second attempt when launching their first company.”
