Small Business Expert Advice: When to Close Down Your Business

— April 2, 2017

Is it time to walk away?


It’s a question that 8 out of 10 entrepreneurs face in the first 18 months of running their own business.


As a business owner myself, I have certainly asked the very same question to myself a few times in the past 6 years of running my own marketing agency.


And it’s a hard decision to make, especially when there are people (and their families) depending on your business.


So when do you call it quits?


I talked to several business experts to help shed light on one of the most difficult decisions every entrepreneur might have to make in their lifetime.


When is it time to close your business, and when is it not?


Mark Kane
CEO of Sunwise Capital


I’m a bootstrapper. All my initial start-ups required small initial investments. Did they all make money?


No!


I’m fortunate (or lucky) that a $ 20,000 credit card advance turned into a platform that helped me raise $ 5M from a hedge fund.


So how did I manage the risk? My approach parallels my 17 years of Wall Street experience. I looked at the business opportunity as an investment. In simple terms, I consider the monetary risks and the financial rewards.


The initial question I ask myself is how much money am I willing to invest to realize a certain percentage of profit? I think of the business opportunity and the investment no different than a stock purchase. What amount of money would I invest in a stock to realize an absolute gain?


That’s the easy part. The tough part is determining how much you are willing to lose. The difficulty is knowing when to cut your losses. Whenever I purchase a stock or start a business, I determine how much I am willing to invest and maybe more importantly, how much I am prepared to lose.


When do I call it quits?


To do this, you need to be extremely disciplined. Unfortunately, for most individuals, they don’t have the mental discipline to stick to their decision.


The challenge for most people is you become too emotionally attached to the business. Once this happens, you become blinded by the need to be “right” versus making money. It’s game over.


It’s the same whether buying and selling stocks or starting and then closing the business.


This strategy serves me well. You must know your numbers. You need to understand how long you can survive at your current churn rate. Losing some money is OK. Losing it all and not having some dry powder to try again is not.


I believe in “go big or go home.” But it doesn’t mean going home empty handed. It also doesn’t mean that you can’t cut expenses, even if it means layoffs and downsizing. I know, I’ve done it. If that’s what it takes to survive another day, cut the fat and lose the weight.


I agree with Mark Cuban when he says, “Doesn’t matter if the glass is half empty or half-full. All that matters is that you are the one pouring the water.”


 


Kent Lewis
President & Founder of Anvil


Determining the appropriate time to shutter a business is one of the great challenges for any owner. According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months.


A whopping 80% crash and burn. With such a high failure rate, this question is always at the top of the minds of business owners.


Unfortunately, knowing when to shutter a business is not an easy or simple decision. While I haven’t been at the helm of a failed business, I have been the co-founder of a failed business and employed by many more. In most cases, the leases, cash flow and compensation for senior executives were major contributing factors.


In one case, however, a company I’d left less than a year previously had prematurely shut its doors based on the threat of a large anti-piracy lawsuit and fine from the government. The $ 300,000 liability that drove the decision to shut down an otherwise healthy interactive agency turned out to be a $ 3,000 fine.


In 2009, I was faced with a $ 35,000 debt after the first year of starting up my second agency, Formic Media. I was seriously considering closing it down and dispersing the employees and clients.


I decided to fund it for one more year. Within five years, it was a $ 1M business before merging with Anvil Media. That loss turned into a meaningful gain. So the secret sauce, according to experts, is ensuring you have sufficient cash runway to get momentum for a startup or turn the tides with a struggling business.


If you can’t turn a business on or back on track in 6 to 12 months and debt is piling up, you have two options: try to sell the remaining assets or declare bankruptcy. I’m a fan of ensuring you make your employees, customers and vendors whole, but that can be difficult if the losses are too significant.


I’ve relied on organizations like Entrepreneurs’ Organization for help guiding my business over the years, with tremendous success.


 


Barry Moltz
Author and Public Speaker, BarryMoltz.com



  1. Passion. Do they still have the passion to continue in their business? Do they still look forward to going to work each day? Lose this drive on a daily basis and it’s time to quit.
  2. Cash flow. Is cash flow steady or is it shrinking?

Is there enough cash in the bank to keep going and get through the current stage or is the company running out?


Does a capital infusion need to be made from the owner or borrowed from the bank?


Negative cash flow means a decision whether to keep going needs to be made soon. Without cash, time is not on the business owner’s side.


A lack of either passion or cash flow means that it may be the right time to quit.


Quitting is not a surrender and it does not mean that you are a failure. Remember that the winners in this world actually know when to stop.


By quitting, the small business owner can stop doing what is not successful and start along a path that changes their trajectory.


 


Kevin Daum
Author & Speaker, Roar & Video Marketing for Dummies


The best rule of thumb when closing down a business is to do it well before bankruptcy becomes your best or only option.


Arsineh Ghazarian
CEO & Co-founder, Zveil


For every entrepreneur it’s important to set out on their new business venture with a clear plan. Though the early stages of a business may be filled with shifts and pivots, a business owner should have a clear sense of their goals over a realistic timeline.


When the day comes that an entrepreneur feels they have exhausted their strategies for reaching their goals, whether it’s because they miscalculated the needs of the market or because their business didn’t have much of a differentiator/ or value add for customers.


Then at that time it’s important to walk away from the confines and preexisting notions of the existing business and to either brainstorm a new concept or build upon the previous concept.


In either case, all is not lost in that you will be in a better place, starting this new venture with a ton of firsthand knowledge about your audience.


Evan Carmichael
Serial Entrepreneur, VC and Author, EvanCarmichael.com


Most people quit on their business too soon and don’t allow the time for momentum to grow. Most people also start a business for the wrong reason. If you’re in a business just to make money then you should quit right now.


You won’t win. The reason to do a business is because you’re insanely passionate about it. That’s the only way you’re going to win. Because you care so deeply about it that you’ll handle any obstacle that gets thrown at you.When should you quit?


If your passion runs out. As long as that fire still burns in you, you have to keep going. Otherwise you’ll live the rest of your life with regret, wondering what if you just gave it a little more?


Holly Reisem Hanna
Founder, The Work At Home Woman


Over the past eight years, I’ve interviewed a lot of women about their business endeavors. Some are still going strong today, others have sold their businesses, and yet others have closed up shop.


From talking to these ladies, I’ve found a few common themes that seem to be good indicators that it’s time to move on.


The first thing is passion. We’ve all heard the saying, “Choose a job you love, and you will never have to work a day in your life.” if you start to dread Monday mornings — there’s a chance that it may be time to move on.


Take time to evaluate if you’re burnt out and need a vacation, or if you need to hire additional staff. If some R&R and restructuring don’t help, you may want to consider selling or closing your business.


The second is aspect is money. If you’re barely able to keep your financial head above water and you’ve been in business for a few years — you may need to consider whether or not it’s worth it to sink more money into the business that’s not generating the revenue you need to survive.


Evaluate your business costs to see if there are excess expenditures that can be trimmed down, as well if there are areas of missed income potential. If your evaluation is grim, it may be time to get out.


The last area is transitional phases. Perhaps you started your at-home business so you could be available for your kiddos — but now they’re in high school and don’t need as much guidance.


Or maybe you’ve been running a business from home, but you miss the social interaction of a traditional office. If you’re in a new phase in your life, take the time to figure out if running a business is still in alignment with your life goals, if not, there’s no shame in calling it quits.


Nick Leffler
Owner, Exprance


I think this is a question everyone has had to grapple with at one point or another. If you haven’t had failure, how do you know you’ve succeeded?


To answer your question, though:


I think there’s one of two signs that you’ll see when it’s time to close down your business. The biggest sign is that your see no path to your business goal. That could mean you’re not adding on customers at a sustainable rate or even you aren’t making enough money for the amount of work you’re doing.


Another sign is that you just don’t have enough money to keep going. Running a business requires capital. If you don’t have the money to invest in your business then there’s a good chance it won’t ever succeed unless you can change that. Either find a way to have the needed capital or decide to close up shop.


If there’s a way up from your current position, then keep on going. If you see no way to get out of your current situation, it’s time to close.


Janet Attard
CEO, BusinessKnowHow.com


The answer really depends on circumstances. If you have been running a business that has been profitable and profits dry up because people don’t want the products or services you sell any more, or they are getting them at low price that you can’t profitably match, it’s time to close the business.


If you appear to have a lot of customers and sales but are losing money, then there are other factors you should look at before closing the business.


First, could one or more employees be stealing from you? Fraud is surprisingly common in small businesses, and it’s often a trusted employee who is the culprit.


Second, are inefficiencies in your operations or outdated equipment or methods be preventing your business from being competitive and earning a profit?


Are you paying for overtime that could be avoided by automating or computerizing any part of your operations?


Can you sell online if you don’t do so now? Would an automated CRM system save employees time and ensure leads are always followed up.


Are you using email marketing to stay in contact with customers and build repeat business?


Weigh the cost of improvements and payback time against savings and possible increased earnings.


If you’ve lost the passion for running your business (or any business at all) it might be time to consider closing the business or selling it if it’s profitable.


Brian Lang
Publisher, SmallBusinessIdeasBlog.com


Quitting a business that you worked hard on can be tough, but it’s something that an entrepreneur must do when necessary. Circumstances can vary, but here are a few reasons to call it quits:



  1. When you’ve lost the drive to continue with it. If other competitors are succeeding in the same business, then there’s usually a way to make it work.But if you’ve lost the drive to continue, then it will be hard to do the hard work to push forward.2. If it is having a long term negative impact on your health, like too much stress or sleeping problems.3. It’s not sufficiently profitable and won’t be getting better in the future4. A better opportunity comes along. I shut down my eBay business when I learned SEO and set up my own e-commerce site, which significantly increased my income.Ultimately, it’s up to the business owner. But it’s important to take the emotions out of the equation and make the right choice based on the facts.

Ivana Taylor
Small Business Influencer, DIYMarketers


Well, let’s start with the basics — you’ve either got a business or a hobby.


Businesses make money, hobbies cost money. So, if you’re NOT making money and/or you’re NOT paying yourself, and it’s been that way for more than 3 years, and you’re living on Ramen noodles, and your spouse is saying things like “How much longer is this going to go on?”


Then you are putting yourself, your family and your fiscal well-being in danger and you should probably do something else. You really have two options:



  1. Call it a hobby and stop stressing about it.
  2. Take a close look at what you need to make this profitable, put a timeline in place to make it happen, be rigorous with yourself and if you get to your deadline – say 90 days and it’s not working — shut it down.

There’s nothing wrong with shutting down a business that isn’t making money. It doesn’t mean anything about you other than your business wasn’t making money.


Thousands of entrepreneurs have started and shuttered businesses and then have gone on to create thriving profitable businesses. There’s nothing wrong with that.


More than 500,000 small businesses close every year. And the reason they close are because they aren’t selling the right thing to the right customers.


It starts with being extremely focused on a specific customer and solving a specific problem. If you’re trying to sell anything to everybody — you’re on the way to shutting your doors.


Find your ideal customer, focus on what’s important to them when they’re thinking on buying what you’re selling and then develop a system that delivers.


Dave Crenshaw
Motivational Speaker, DaveCrenshaw.com


“When you start losing passion for your business, that’s a sign you may need to exit. Small businesses are passion-driven. If an entrepreneur isn’t excited about their small business, it will be difficult to get anyone else to be excited.”


Susan Gunelius
Founder & Editor-in-Chief, Women on Business


I think the time to close your business happens when you hit a wall that makes it impossible to keep it going, sell all or parts of it, or reorganize into something new and better.


However, I think the decision as to what to do with your business when that happens should be made long before it actually happens (so you never truly arrive at the final point of failure).


Every business owner should have a comprehensive exit plan in place from very early stages that includes not only what happens if the numbers tank but also what happens if the owner’s heart (or health) simply aren’t “in it” anymore.


Laurie McCabe
Co-founder & Partner, SMB Group


Here are 3 signs it is probably time to shut down:



  • If there’s no longer a market for your products or services–such as if you owned a video rental store and then Netflix and live streaming came along!
  • If you are not enjoying the business/not motivated.
  • If you’ve been in business a couple of years, aren’t making a profit, and struggling financially.

On the flip side, if sales/profits are lagging, but there is a market for what you sell, if you have a plan to turn things around, and you have the resources to stay the course, it can make sense to give it another shot.


Roland Hanekroot
Business Coach, New Perspectives


It’s a difficult question, but let me give you the short answer: When it’s not fun anymore.


Fun is the key indicator of the health of your business. If it’s Fun, you’ll have no trouble managing the stress and all the competing priorities, it means you’re in the midst of an engaging adventure and it feels like you’re getting somewhere.


When it isn’t Fun anymore and the sense of dread you have about the week ahead or about getting out of bed is overwhelming and you can’t see the light at the end of the tunnel… It’s time to get out.


Roberta Perry
CEO, SrubzBody


I think there are so many different reasons for businesses closing down or ending. My own experiences helped shape who I am and what I do now, so I see every failure as a growth lesson for the businesses that succeeded. I have had two of each.


My design business never really closed, it faded and I still do the occasional design for someone other than my own business. My skin care business, ScrubzBody™, is thankfully an ongoing success.


Now, the 2 businesses that failed did so for different reasons. One was because I lost interest and stopped seeking out new business. I literally watched it implode slowly. Because it was at the same time as my other business was growing it was not a bad thing, just another shift and growth in my career path.


The other business was a total crash and burn. We were 3 ill-prepared business partners who ran head first into a business we knew nothing about. After a year and a half of throwing good money after bad it just ended. I never saw either of them again after that last meeting.


Gene Marks
Small Business Expert, GeneMarks.com


The time to close down your business is when one year before you’re forced to close down your business.


The smartest business owners I know, those who have survived recessions and downturns, are always looking ahead – sometimes two to three years ahead. When you look ahead at least a year what do you see?


A competitor coming into down? Declining demand? Sluggish economy? Meager profits?


Regardless of how much passion you feel or love you have for your business, a business is a business and it exists primarily to provide you with a livelihood.


If you’re not seeing that happening a year from now then now is the time to close (or better yet sell) your business while there’s still some value and while you still have that option.


Liz Jostes
Social Media Consultant, LizJostes.com


One of the biggest challenges I see among entrepreneurs and small business owners is that they fear their business isn’t successful or not on the road to success, but haven’t put in consistent, focused effort with their business.


There are some people who went out on their own because they have tons of ideas and want the freedom to make their own decisions, but their downfall is a lack of execution on their ideas and “staying the course”. You don’t want to close down your business and label it a fail if you haven’t given it the proper chance it needs to be get off the ground.

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