Nobody wants to quit. We live in a society where failure is a sign of weakness. In graduate school I took a course on Entrepreneurship, and when creating our business plans we developed exit strategies. When I first heard this idea I immediately resisted. Like many entrepreneurs, ever since I was young the mindset of never giving up has been instilled in my psyche. In a small business this can destroy you.
It is easy to know when to give up after a devastating crisis because the situation might decide these circumstances for you. It is more difficult when debilitating conditions are not present, and your business is dying a slow death. When do you close a business in these situations? Hopefully you have an exit strategy, but if you do not, here are a few hints you can use to help you discover if it is time to close your organization.
You cannot analyze how much your business is making as a measure of success alone. Weighting the opportunity costs is a more realistic strategy. My wife is a small business owner. She holds a Master's Degree in Immunology and Microbiology. When judging whether to continue her business we must not only figure out how much her business is making, but also how much we are losing from her not working.
As the years go by, the profits of your business must go up to close the gap between what you could be making, and what you are making with your business. For instance, if you are making $50,000 a year operating your business, but you could make $90,000 working at a traditional job, you are losing $40,000 a year! This number would represent your opportunity costs, and it could be an integral part in deciding whether you should continue navigating your own business.
There are few things in life that I can think of that are worth losing your family over, and a business is not one of them. A business that is not profitable and under-performing puts a strain on the best relationships. Research shows that entrepreneurs who have the support of their family are more likely to have success. If your business is tearing apart your family, you may have to decide whether the business is worth continuing. Many would argue that a price cannot be placed on the value of family. In a small operation the intertwining of family dynamics and business often occurs. Making a decision for one might be deciding against the other.
Sunk Costs Analysis
Financial expert Dave Ramsey commonly uses a sunk cost analysis as a tool to test different business situations. A sunk cost analysis looks at the future potential of your business moving forward, without considering the costs that you have already lost or “sunk.” Mr. Ramsey normally presents a common sense approach when using this technique. Be honest about your situation, and ask one simple question. Based on where your business is projecting to move in the future, would you buy your own business again today? Each day that you continue to run your business, you are in a sense, choosing to buy it again. The answer to this question may give you insight into how you view the health of your business, and whether you should cut your losses by closing your business.
Create Boundaries and Live By Them
Part of developing an exit strategy is to know what types of circumstances trigger closing your venture. In a small business these scenarios could be many things. Not meeting profit goals, marriage and family issues, and losing the passion to continue, all could be events that you decide are enough to end your business. You must know what these events are before they occur. If you are in the middle of a dilemma, and have not defined what your boundaries are to close your venture, how will you know when you have crossed them? Entrepreneurs are typically very hard charging people. If these boundaries are not set it is possible that one might go on fighting forever, even when the war has long been lost. Create boundaries for your organization, and live by them.
The Christian Influence
As a Christian I believe it is God that directs the circumstances of believers. Romans 8:28 states that "...in all things God works for the good of those who love him, who have been called according to his purpose” (NIV). This is not to say that one should not work and persevere through difficult business situations. It does point to the fact that when doors are continually closing in spite of hard work, there is a possibility that divine influence is taking place. It is not just Christians who follow this viewpoint. Many outside of the Christian community believe that circumstances, favorable and unfavorable, seem to happen for reasons that cannot be explained. This is commonly called fate or intuition. Whether you call it God, intuition, or fate, I would not easily ignore these signs.
Closing a business is an act done with much thought, family counsel, and reflection with God. Weighting the suggestions above should help you gain an idea of whether to move closer or away from business closure. One should practice due diligence before making any final decisions to make sure that this life changing event is properly handled.