As an experienced business coach, it’s rare that I need to say to someone, it’s time to call it quits in your business. But although rare, if I have to, I will have that discussion with a client. Calling it quits is never something we want to do in business, but there are instances where it’s just sensible.
When Do You Call It Quits in Business?
- You’re not making money, or worse, losing it. I’m not talking about a single quiet month, or a job didn’t go well and you lost money on it, but consistent losses over a longer period of time. Firstly, look seriously if things can be turned around with support, guidance and smart direction. I’ve worked with some businesses which were hugely struggling, but the ‘bones’ of the business were sound and with some sensible adjustments, we were able to turn things around.
- You’re hating your business. By this, I don’t mean that you’re having a bad week or bad month, but for as long as you can remember, you just don’t enjoy your business and getting up to work is a real chore. Of course, if the money is fabulous, you need to make a decision, but if the money isn’t great AND you’re not enjoying it, then what are you doing? If the money is great, but you’re hating it, rather than quitting, consider going down the sell path and begin preparing the business to sell. Not all profitable businesses are saleable, or by doing a few things, may be able to be easier or quicker to sell, or at a greater price. There is more to it than just the profit in the business.
- The industry is dying. Video stores, print photography, books, music – these industries have had dramatic changes that have changed things so much that if you cannot change, you may have to recognise your industry is dying. Sometimes you can adapt and change (ie retail stores that now sell online) but sometimes you cannot. Books are a typical example. Not only have online stores taken over, but now audiobooks have impacted this industry even more.
Things to Consider
- The figures simply are not stacking up. Firstly, ensure your bookkeeping is current and accurate. You absolutely don’t want to be making crucial decisions based on inaccurate figures. If you’re making losses every month, then it’s not about debt collection or slow-paying customers, but something more critical. If you can’t change things and improve, then tough decisions are needed. Remember, though, if you’re working to ‘trim the fat’, that is fine, but ensure you’re not cutting out muscle. Muscles are the expenses which keep your business strong, like marketing, training and business coaching. Fat are the expenses which are wasteful, not needed or luxurious.
- Your business is not your baby. When I sold my prior business, people asked me how I felt about ‘letting go of my baby’, and honestly, it was like selling a rental property. I was letting go of an asset. Sure, at some point, I was emotionally connected, and I certainly cared about my team and clients, but it wasn’t the same as when each of my sons grew up and left home. When it comes time to sell or close, I know it can be emotional, but make the decision based on facts, figures and sensibility; not on emotion.
- Remember why you got into business. Most people say it’s for the freedom and the money. If you’re business isn’t giving you those things, then why do you continue to soldier on? If you’re continuing, purely because you’ve got staff/team and they need a job, but you’re losing money month after month, then it may be time to be a little selfish. You can help them get another job; give them time for interviews, a fabulous reference, or even promote them online to your contacts. Businesses are always looking for excellent people. Do what is right for you and your family.
- I highly recommend that you don’t bail out your business by taking a second mortgage on your home, or investing your inheritance into the business or asking your spouse to inject a chunk of savings into the business. If the business is failing, then purely throwing more money at it is not fixing the source problem. You’re just burying your head in the sand and delaying the inevitable.
- Don’t rush this decision. A bad month doesn’t make for a bad business. A frustration, painful staff member, demanding client or a touch of bad luck doesn’t mean your business is failing. Blend analytics with emotion and give your thoughts careful consideration. Talk (confidentially) to trusted advisors, your coach, accountant or mentor. Don’t have this conversation with clients or staff, until you’ve decided. If you say something, a team member might jump ship straight away, and maybe it was just a thought that you won’t actually implement.
- Be practical about things like rent or vehicle finance; can you get out of the 3-year office lease, or what will happen with the equipment finance? It may be that you can sublet your premises or sell the equipment and have arrangements for paying out the finance?
- If you are so far in debt and in trouble, you may even need to apply for bankruptcy. There are a number of people who assist with everything from a Small Business Restructure, to a full-out bankruptcy. Somewhat substantial fees are involved, but if you owe the ATO or suppliers a heap, it might be an option to consider. Be sure though to ask the questions, like what listings will publicly show you as bankrupt, and what the consequences are if you should want to start another business down the track. Frequently, you will come across the question “have you ever been bankrupt” in everything from applying for insurance to getting a trade account.
- Be practical and think about what you’ll do next. Will it be getting a job, working for someone else, or something else? Your financial position and home situation will obviously affect that decision and what you’ll do. Though I do recommend you have something to look forward to after the business, in order to give your purpose each day.
The Practical Steps to Take
If you do choose to close down the business, versus sell it as a whole, here are some things to action. I highly recommend you start a list of things to action and as you do each item, mark it off, in order to ensure nothing is forgotten. Here is a bit of a list to get you started:
- Talk to your accountant first, they may likely have some advice or a checklist to follow
- Finish any jobs or orders which are on the go
- Refund any deposits, if you are choosing to not do those jobs
- Advise staff, provide references and any help you can in order for them to move on. You may even phase this; with some staff going sooner and keeping on one or two people to assist in the closure.
- Notify your customers or clients. If you have stock, have a ‘closing down sale’.
- Prepare final pays for staff; including any redundancy payments you may need to make
- Make final super payments (and cancel super registration once finalised)
- Sell any equipment or assets you might be able to get some money for
- Collect outstanding debts (ie customers who haven’t paid yet, get paid!)
- Pay out any suppliers or contractors
- Talk to your accountant about ceasing your GST registration, business name rego etc
- Finalise your lease (and move out) and don’t forget to cancel services like electricity, phones, internet or security. Ensure you leave the premises clean and in good order to get back your bond.
- Close down (or redirect your website). You might be able to direct business to a competitor and get a referral fee or monthly leads fee from someone which will cover more than your ongoing website costs. Remember your website is made up of the site, hosting and domain name ownership.
- Shut down all your online listings and social media profiles
- Cancel services, such as apps, subscriptions or Xero (which can be potentially downgraded to read-only level)
- Cancel insurances, but for Professional Indemnity, ensure you have ‘run off’ coverage
- Cancel licenses or permits, BUT seriously think about whether you might take up something down the track. Maintaining licensing is often FAR easier than re-applying for it down the track.
- Close business bank or credit card accounts once all is finalised; make sure all customers have paid so that their payment later does not bounce.
- If you’re a company, and closing that entity, you will need to advise ASIC but ensure firstly that everything is wound down, ie all payments and receipts are finalised, so this may be somewhat later.
- Get mail redirection organised
- Lodge your final tax returns for the entity
- Keep your business records for the prescribed period of time. With the ATO, this is 5 years from the date of lodgement, but certain industries require longer.
What Do You Tell Your Clients or The Public?
If you don’t want to tell people (or even announce it) as closing down or failed (and totally get you would not want to do it that way), then I suggest that you position your announcement in a positive way, such as:
- After serious consideration, I’m closing this chapter to pursue new opportunities that align with my longer-term goals.
- I’ve decided to pivot and focus my energies on a new venture’ (if you have something else, because the lead question will be “what is your new venture?”).
- This closure is a strategic decision to pursue new opportunities or a different direction.
- Due to regulation changes, which are totally out of our control, we’ve made the difficult decision to not continue in this business.
- After careful consideration, I’ve decided to close the business in order to focus more on my family, as the business has proved very time-intensive.
- I’ve been made a job offer I couldn’t refuse, so I have made the decision to close/pause this business for a period of time.
- I’m closing the business to return to full-time work in a different field. The experience has been awesome and I appreciate the support that you’ve provided over the last several years as a valued client.
- I’ve made the strategic decision to close XYZ, effective 15.12.xx and am looking forward to my next fabulous adventure.
You don’t have to tell people why; if asked, you can just say “A number of factors were considered when making this decision, but I’m really looking forward to xxxx”.
In Summary
Failing in business is not a goal anyone has when they get started. However, a high percentage of businesses do not succeed, for a whole multitude of reasons, ranging from poor financial management, through to external factors somewhat out of your control, including a large customer themselves going bankrupt.
Sometimes a struggling business can be turned around. I’ve had clients who were struggling and once I look at their model and what they are doing, we’ve been able to turn things around. However, sometimes, sadly, it is not fixable. Give careful consideration to whether to stop or keep going. Base decisions a little on feeling and a lot on facts and figures. Consult with your accountant or advisor for a second opinion and if it doesn’t look to be workable, then follow an action plan to make it happen as smoothly as possible.
And a final message: remember that if your business failed – YOU are not a failure! 😊
