Your Small Business: When Do You Call It Quits?

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:

1. Do you have the time, energy, and desire to continue the business?
2. Could the business prosper if it wasn’t servicing old debt?
3. Could the business prosper if it shed equipment or premises leases?
4. Could you start a like business if you walked away from this one?
5. 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.