No one opens a business expecting to fail, but sometimes, despite your best efforts, business isn’t heading in the right direction. Whether you are watching your sales drop, expenses soar, or a combination of the two, you might be wondering if you can turn things around or if you are better off throwing in the towel. Before you decide to pull the plug, review your business and set a list of criteria. Here are tips on deciding if your business should shut down, or if it is just a building year.
Consistently Declining Sales
The first place to look before deciding if it is time to close your business is the current trajectory. If sales are growing, just not as quickly as you’d like, something is working right in your business and a few tweaks could solve your woes. But if sales are declining, and you start to see a trend that sales won’t turn around any time in the foreseeable future, closing the business might be the best decision.
Depending on your business, pouring dollars into marketing and other strategies to grow your sales may pay off well, but don’t sink more money into a lost cause. If your business is on the decline, sometimes the merciful thing to do for yourself is stop pouring your energy into a failing enterprise.
Having emergency cash on hand can be your key to managing cash flow.
If your business is seasonal, don’t throw it away after a few months of decline. Give it enough time to understand if your slowing sales are a trend or a blip on the radar. But if sales have been going down for a year or more, that’s a bad sign for your business future.
You Can’t Pay Yourself
Many business owners go without a salary while starting up, or stop taking a salary for a period of time to get through a rough patch, but overall if your business can’t afford to pay you, you can’t afford to stay in business.
When I left my full-time day job to take my freelance business full-time, I didn’t pay myself much of anything for the first few months. It took some time to build up enough momentum to pay myself a salary that was about half of what I earned at my day job. But now, nearly two years later, I make more than I did at my old day job with room to spare.
Remember, you’re not in business for your health. It’s fun to follow a passion, but if it doesn’t make enough money to cover your basic living expenses, it is more of a hobby than a business. As with declining sales, you shouldn’t quit just because of a bad month or two. Give it enough time to truly understand if your business will be able to pay you, and if it won’t or can’t, it’s time to find a job where you can make a decent living.
Falling Credit Score
Has your personal or business credit score dropped dramatically since opening your business? A lower credit score doesn’t necessarily mean your business is in bad shape, but it can be a big warning sign. After all, credit scores tend to drop when you can’t pay your bills. If you can’t pay the bills, and your credit is suffering along with your business, that should be a big red flag.
If you don’t know your credit score, sign up for a free account with Nav to get both a personal and business credit score instantly, no credit card required. Premium accounts give you multiple scores from multiple reporting agencies and tips and advice to boost your score.
If your credit score went from 800 to 500 because you borrowed money for the business and can’t pay the bills, sit down and really try to understand what’s going on with your business and your credit. Look at your P&L and balance sheet and look for a path to success. If you don’t see one, the writing might already be on the wall.
No Wind in Your Sails
Are you experiencing extreme burnout? Not burnout like, “I don’t feel like work today,” but burnout like “I can’t get out of bed and I hate my business?” If so, you might not have enough gusto to keep your business going. That isn’t a personal failure on your part, but if business isn’t going well and you are not motivated to succeed, how can you ever expect to turn your business around.
Burnout is common among entrepreneurs and business leaders. The entrepreneurial spirit is one that often leads founders to jump from project to project. Seriously ask yourself if you have given this business enough of a chance to succeed. If you have given it a genuine chance and you still don’t have enough energy to build your business further, you might be best following your instincts and shutting this one down.
No Path to Profitability
You are in business to make money, do you see a route to get there? If you can’t come up with any possible way to turn your business around and make money, that is the final nail in the coffin. Unless it is a fun side hustle that you can sustain while maintaining a successful day job, it is probably time to move on to something new.
Don’t be too rough on yourself. Half of businesses are gone within five years of founding and two-thirds fail within the first decade. As the old proverb goes, “If you don’t at first succeed, try try again.” So don’t get depressed because your business failed. Try to turn the business failure into a lesson as you ask yourself, “what’s next?”
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