Businesswise | Don't be afraid to close your business in 2017
"I'm thinking of closing this business. It's become so competitive, I'm not making much money and I feel like I've lost my passion for it. I've been in this for over 20 years, and everyone says I shouldn't just give up because I'm a foundation in it. I have a known brand and good customer base. My friends and family think I need to do things differently and try again. What do you think, Yaneek?"
It was a shocking revelation coming from the owner of a business I have been patronising for over 15 years.
I had just made my usual monthly purchase and was about to leave her establishment when she opened up about the struggles she was having. Although I was put on the spot, the answer for me was fairly easy - don't be afraid to close or sell the business and move on to exploring more suitable opportunities.
She was surprised and visibly relieved by my answer.
There are many business owners who are in the very same position of that veteran entrepreneur, operating a business that has become unviable, for which they have lost the passion, but are afraid to close down.
The decision to close a business can be very complex. However, assessing the following key factors with the support of a business adviser or accountant will make it easier to come to a conclusion.
FACTORS TO CONSIDER
From the technical or academic perspective, a business should be closed when it can no longer meet its fixed costs.
From a practical standpoint, however, it is not prudent for a business owner to wait until the business is in a financial crisis to close. In an ideal world, it is far better when the management is proactive in reviewing the business' historical performance as well as credible projections for future performance and take steps to shut down operations before the situation becomes dire.
In addition to financial performance, competition and changes in the business or regulatory environment, there are other factors to consider.
Where the barriers to entry are too low and the market becomes flooded with competitors, it may make it difficult for businesses to compete, especially if price is the only differentiator. In that case, customers won't be loyal to a company but to the lowest price find.
Exchange rate fluctuations, changes in government or regulatory policy, dramatic fluctuations in the costs of key inputs are all factors to consider when closing a business.
Other external factors, such as social order, interest rates, access to finance, economic growth, etc, must be comprehensively assessed in terms of their current or potential impact.
Emerging and anticipated changes in consumer tastes and behaviours are critical when assessing whether a business is a going concern. Consumers don't remain static. People change. Their circumstances, needs and desires will understandably change, and in some cases, this can result in either a huge opportunity or dismal end for a business. Businesses have to be as dynamic and flexible as the market demands, and where a business is not able to do so, it should consider closing down.
One of the most significant factors affecting almost every business today is technology. A major factor to consider is how future technological advancements will affect your business, by when, and whether the business in its current form has the ability to pivot appropriately in order to compete.
If it is inevitable that technological advancements will make the business obsolete, it's wise to develop an appropriate exit strategy.
Finally, the company and management vision, focus and commitment should take centerstage when deciding on maintaining operations. It's good when companies review the vision, mission and values and assess whether it's time to modify the strategy and business model for future growth or exit one line of business in favour of the one that is best aligned with the vision.
Passion is what drives customer focus, innovation, operational excellence, business growth and several other prerequisites for business success. The loss of passion for a business is an urgent signal that it's either time to change management, sell the business or shut down and move on.