So much is written about when to start a business, how to start a business, how to grow a business, how to manage a business, etc. But very little is written about when to close a business. I thought the following article addressed the delicate subject of when to call it quits in a pretty straightforward way. Let me know what you think.
One of the hardest decisions a small business owner will ever face is whether to shut down a business that is losing money. It is an emotional decision because of the blood, sweat and tears that it takes to go into business for yourself. But it is also a financial decision, fraught with uncertainties and unknowns. Whether you have invested your life savings, or just your life, in a business, it is not easy to decide whether, and when, it is time to quit.
There are some businesses that are clearly not viable without a significant change in product or service. Let’s say, for example, you operate a photo developing and printing business. With the advent of digital cameras, cheap photo printers, and online printing services, it may be obvious that such a business cannot survive without either diversifying or offering some unique service or product. But for most businesses, it’s a much closer call. In the present economy, when so many businesses are failing, there is an added risk/reward analysis–with so many businesses failing, if you can outlast your competitors, you may be well-positioned to take advantage of reduced competition when things improve.
Cathy Moran’s five questions for business owners are a very good start toward identifying your options and deciding whether you should continue to try to operate your business, reorganize your business, open a new business, or call it quits. Those questions are:
- Do you have the time, energy, and desire to continue the business?
- Could the business prosper if it wasn’t servicing old debt?
- Could the business prosper if it shed equipment or premises leases?
- Could you start a like business if you walked away from this one?
- Could you sell this business as a going concern?
I often tell clients that the first thing you should do when you find yourself in a hole is quit digging. If your business is in a hole, bleeding cash and building debt, I would add one more bit of advice. Set yourself a limit, whether it is a dollar amount that you will invest in the business, or a length of time that you will operate at a loss, or some other measure. Decide on your tolerance for risk, and don’t go beyond it. I can’t tell you what that ought to be because it is a very personal limit. But set it, and live with it. Don’t just keep digging the hole deeper out of simple inertia.