Deciding When To Wind Up A Business
October 2, 2008
Deciding whether you should wind up your business isn’t easy. I’ve had to make the decision to wind up a business myself and I learned a lot from the experience. And if you’re faced with that decision, I hope these guidelines will help.
Do You Have A Choice?
Much of the time, if a business is performing badly, the decision to sort the problem out, or wind up the business will still be in your hands, if you tackle the problem quickly. And this is a good thing, because it means you are in control of the outcome.
That feeling of control is important if you decide to wind up a business. I think when some folk talk of failing, after winding up a business, it’s often because they felt helpless, as they were no longer in control. And that’s a shame, because it can put them off trying again.
If you are still in a position of control, ask yourself the following questions:
Is The Story Still The Same As It Was When You Started This Business?
Are you still passionate about this business?
Is there still a demand for what you’re selling?
Is your industry being affected by an economic downturn? What can you do about it?
Do you have enough cash to keep growing the business?
What other problems does the business have and how can they be resolved?
Are You Still Passionate, Or Were You Ever Passionate About This Business?
The passion factor has been much debated. You certainly don’t need to be passionate about the technical aspects of your business but it does help if you’re interested in learning more about your industry. The business I wound up was a plumbing business. Now I’m not a plumber and I never intended to become one. But that didn’t matter.
I was passionate about my vision of what a plumbing business could be like. Trouble was, my vision was a lot different to the way the industry is now, so I was met with a lot of resistance, not from customers but from the people I employed. They liked things the way they were and I thought the industry sucked.
To overcome that resistance, we knew we’d have to train people from scratch and because of the financial position the business was in, I couldn’t see it happening for a couple of years. So I decided I’d rather be doing something I was passionate about now.
* You don’t always have to make money back the same way you lost it. A lot of folk make that mistake. If you’ve lost cash in a business and you’re not passionate about that business, you’ll probably find it’s easier to make it back if you do something you love to do.
Is There Still A Demand For What You’re Selling?
Did you research the demand for what you’re selling? Does that demand still exist? Often, demand can decrease if the economy is in trouble. And sometimes, new technology can make what you’re offering redundant.
The construction industry was hit hard in our area. Bigger, better established plumbing businesses began to go bust and many builders stopped building. Also, people just weren’t spending money on things like new bathroom suites.
Now an economic downturn doesn’t necessarily mean you’ve got to wind up your business – especially if you’re still passionate about it. For a start – you could diversify – if you can afford to.
Can You Afford To Diversify?
Consider what will it cost you financially to diversify and whether you have the necessary skills or experience. You have to be brutally honest with yourself when you’re doing this and consider the downside.
For example – we had the chance of two large contracts. We could have made a huge profit if we’d gone ahead with them. But after a lot of consideration and getting outside opinion, we turned them down because we didn’t have the knowledge and experience to do the type of work we were offered. Plus, we’d have needed to borrow in excess of £100,000 personally. For me, the potential downside far outweighed the possible gain.
*If you find yourself in a similar position – work out what you could lose if things went wrong and decide whether your business could stand that risk. Business isn’t about taking foolish risks, you’ve got to measure each one carefully.
Do You Have Enough Cash To Keep Going?
Do you have enough cash to keep the business running, if there’s a decline in trade? Are you being realistic? Sometimes having enough work coming in isn’t enough and you need to allow for unexpected hitches.
In our case, I figured that we’d have enough cash to keep going for a year but we really struggled towards the end and I wound up having to sell personal items. It was partly due to problems I hadn’t anticipated.
For example, we overestimated the experience of a couple of people we took on. They didn’t get the work done in time and because we charged per job, rather than by the hour, we started losing money on the work we were doing.
Also I was relying on money I was owed from a business I’d already sold and I didn’t get paid. I still haven’t been apid but now I’ll make sure I do. And you can bet that the person who stood in the way of me getting my cash will be truly sorry.
*If you sell a business – make sure you collect in all your cash before you start another one, as you may not have time later. Also, if things start going wrong in the early days of your business, do something about it as soon as you can, instead of hoping things will improve.
Small Problems Are Different
Businesses will have small problems all the time. And so long as you can find a solution to them – and your business story hasn’t changed, you should be able to ride them out, so long as you don’t have too many at once. Things like short term cash flow problems, staffing issues, theft, damage to business premises, short term shortage of work etc can all be overcome. But it may be more difficult if you have several problems at once.
Business Problems I Haven’t Mentioned
There’s many problems you may face that I haven’t mentioned. Things like ill health, loss of business premises, partnership problems, or even the death of a partner could cause problems in your business. But you can make a contingency plan to enable you to deal with these type of problem if they arise.
If you’re considering winding up a business, I hope these guidelines have helped. Can you think of any additional problems that might cause you to wind up a business? Do you have any questions?
I wrote this article in response to a question from Avani Mehta. Avani has written an excellent anger management series and you can check out part 1 here: Decoding Anger: Anger Management Series Part 1.
Related Reading
Lack Of Anticipation – A Huge Business Mistake
Oops – I Sank A Business
Risk & Money In Business – The Rules
There’s No Business Problem That Can’t Be Solved
Comments
11 Responses to “Deciding When To Wind Up A Business”
Got something to say?
Cath Recommends
Change Your Life
Make Money
Talk To Me
Successful And Outstanding Blogger
Hi Cath. I wrapped up my most recent business because I realized it wasn’t feeding my true passion. It also wasn’t feeding my pocketbook and I didn’t love it enough to try harder. Yes, I was interested in nutrition, but only for my own use. I wasn’t interested in sharing my knowledge.
Now I’m starting to uncover a deeper interest in wanting to share a passion for self-discovery with people, and to encourage them to call it forth in themselves through coaching. Writing is the catalyst for this.
Davina’s last blog post..Creative Luny Landing In The Sand
Hi Cath, Great checklist. Can’t think of anything to add, except perhaps an opportunity to merge or sell the business.
Brad Shorr’s last blog post..A Hat Tip to Blogs I Read in Silence
I’m still in the early stages of my business (the stage when I still don’t make money). I appreciate your thoughts, however, on how to wind up a business. It helps me evaluate if I’m still heading in the right direction.
Stacey / Create a Balance’s last blog post..Yes, Oprah Really Did Call Me
Hi Davina – It’s great that you had the courage to end something you weren’t happy doing and start something you love. A lot of folk won’t do that – they just keep flogging a dead horse for a long time.
Your coaching business is going to be amazing. I know how passionate you are about it and how much effort you’ve put into setting it up.
Hi Brad – that’s a good point – even if you’re struggling, it’s still possible to merge or sell – especially if your business has assets such as premises that it owns.
Hi Rita – well I’m glad you wouldn’t lock your pet goldfish in a safe for a year. It sounds like you’ve made a smart move, as it looks like the price of gold is going to soar.
Hi Stacey – I’m glad it’s helping. I hope you’ll be able to use some of the other articles on this site to get you making some money. How long have you been trading for?
I’m also in the early stages as well but thanks for letting me know the insights of what could happen and why?
InfectedByBugs’s last blog post..Real Money Easy Ebook Review
When we finally closed down our Dry Cleaning business, it was tough. We tired many things but we couldn’t resuscitate it…It was difficult to let go even though we had many sleepless nights…
chris’s last blog post..Lovable Losers
Hi Catherine – These are all great tips. It’s never easy to close a business, but if we’re realistic, often it’s the only choice. One good thing about closing a business, it often open up doors for us to explore new endeavors.
Barbara Swafford’s last blog post..Just A Click Away – Open Mic
Hi Bug person – you’re welcome.
Hi Chris – If that was your first business I can understand why it was so tough – I think I would have found it much harder.
Hi Barbara – That is one of the best things isn’t it? There’s often something better around the corner.
[...] Cath at Cath Lawson [...]
How do you keep the passion for anything that long though? Even not-for-profit endeavors become seemingly endless and dying at times.
I feel like things that I love are slowly turning into work. But I think that’s because I love it enough to do it all the time. It’s such a paradox! How do you keep the passion for a business?
JerseyMic’s last blog post..Gregorio’s Market in Mays Landing on Wednesday, June 17th, 2009 (pictures!)
I have a tanning business of 24 yrs. I was pressed to take on more space alittle over 4 yrs ago, in which we had to fork over money to remodel the space added that was warehouse; thus turning it into now retail. Benefiting the landlord; plus he upped the rent. The overhead expenses of rent and utilities have taken a huge toll on my life, and my health but I didn’t want to give up because I had invested so much time and money – and years. I made this year pretty much equal to the expenses – and haven’t paid myself for 3 years. The economy is bad but I could make it being in another space. My lease is up in 8 months and my busy season is right around the corner so I know that by working hard for these last 8 months I can come out without filing bankruptcy, and hopefully getting caught up with all the debt I still owe at this point. My mother used to say “you made you bed – you lie in it”…..I made a decision over a year ago to not quit, but I have many times of depressed state that I want to get healthy, and be happy without the stress. I do have a place that is 1/8th of expense – and it is in the building right next door. Plan is to survive. I rethink my decision over and over……….is it worth it………do I want to continue to do this……..and I wish for “a life”. Am I crazy? I feel …….Yes! But, then again – I do see a solution. I see a new start. And – just maybe – this move will give me that life, and the passion back that was robbed of me due to the stress of making good with my contract. What other options do I have?????? Bankruptcy – and a recent divorce – with no home at present. Either way it’ll be a struggle. My health will be the deciding factor, and I’ll know the results before the end of the year.