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.

Image by Kenneth Lu

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Lack Of Anticipation – A Huge Business Mistake
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There’s No Business Problem That Can’t Be Solved

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