How to Decide When To Close Your Business

July 10th, 2022, 12:00 PM

How do you know whether it's the right time to shut down your business? 


Statistics show that over 80% of businesses fail. That number is even higher when you consider the number of businesses that can barely maintain the owner's standard of living. 

Deciding to shut down a business may feel a lot like giving up on one of your children.  

It's not a decision that most people take lightly. 

So how do you know when it's the right time to close your business? 

How do you know whether you just need to pivot or adapt or try something new? 

Some experts may tell you that you need to close your business if it is insolvent, if it can't meet its financial obligations, or if the industry is dying.  While all of these factors may contribute to the decision, ultimately you should only decide to close your business when you just don't want to do it anymore.

If your business is failing to cover its financial obligations there are always ways to restructure or try to work out the debts.  Perhaps you need to change your business model, or find a new batch of customers, or find a way to deliver your product or service more efficiently (i.e., more profitably).

Even businesses in declining industries can be successful.  Bookstores, and video rental businesses, and even shopping malls can continue to be profitable despite pressures from the competition. However, it doesn't matter whether a business is in a strong financial position or not, if the owner doesn't have the desire to continue running the business, then it's probably time to exit, especially when this feeling persists over a long period.

The good news is that most real businesses have some value, even in liquidation. Profitable businesses, (i.e., businesses that are capable of making money even when the owner is not present) are almost always appealing to a willing buyer. 

All of these factors become even more complex, if there is more than one owner of a business, or if there are investors.

When a business has investors, those investors expect a return on the money that they have contributed to the venture. If the business is not meeting investor expectations, investors may have the option of liquidating the business. or replacing management (i.e., you). 

If a business has partners, or more than one owner, a financial strain on a business can cause a significant personal divide between the owners. We often say that there's no faster way to end a friendship or relationship than by going into business together. If you're not getting along with your partner, and you begin to feel resentful, then some action needs to be taken.

So what do you do when you decide it's time To get out of the business that you're in? 

Often the worst decision you can make is to just lock the doors and walk away. You often have creditors to deal with, and may need to deal with repercussions from employees or landlords. To avoid future headaches, you want to make sure that you've resolved any issues with all of those parties. You also need to make sure you've provided all proper notices to the state and the IRS. The last thing you want is for the business that has caused you so much stress and anxiety to create more nightmare six months or two years down the road. 

As painful as it can be to decide to close the business, you need to make sure that it is done properly to avoid future headaches. 

Even if you don't think your business is worth any money, we recommend you talk to someone who has experience buying and selling businesses to determine whether there may be an opportunity to help you sell and have some money left over to begin the next chapter of your life.

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