Signs to tell you that the end is near
While it is the job of the CEO to ensure the survival of his or her business for the long haul, it is nevertheless unwise to keep pursuing a business model that is simply not working in the first place. The astute CEO should also know when to leave a sinking ship.
Here are some warning signs that will tell you that perhaps a graceful exit should be an option to consider:
- Your losses are increasing It is not unusual, and perhaps even expected, for a business to lose money in the first few years of operation. Particularly as it tries to build up its client base and goes through a lot of startup expenses.
- Your debts are mounting Are you borrowing more and more just to meet your obligations and to provide working capital? While debt can work for you, too much debt can be a serious sign of distress. After all, debts have to be serviced, so too much debt would eventually eat into your profitability as you pay off mounting interest expenses.
- You’ve lost the passion Has running the business become a chore? Are you no longer excited about the challenges that your business has to offer? Perhaps you are already burned out.
Nevertheless, a thriving business should be recovering from these losses over time, even if slowly. So if your losses are actually increasing with time, either due to declining sales or because of skyrocketing expenses, then sustainability becomes a problem.
Perhaps the business model just isn’t working. Can you still turn things around? Can you come up with a strategy that can dramatically change the course of your business? Can your sales still pick up? If not, then closing shop becomes a possible course of action.
Keep track of your debt-to-asset ratio. While a high debt-to-asset ratio may be good for businesses with ROIs (return on investment) that are far higher than the cost of debt, high ratios can be disastrous for businesses that are not profitable.
Be wary of fueling your business purely from debt as well. If you are becoming dependent on debt in order to obtain your working capital on a regular basis, then this is a warning sign that your business might be on a downward spiral since not enough cash is coming in. You can literally grind to a halt. If you are habitually borrowing for your working capital, make sure it’s because your receivables shall really be received by your company soon in the first place.
Also, avoid the typical habit of many entrepreneurs of borrowing working capital using their credit cards – remember that borrowing against credit cards can actually be very expensive!
When running the business is no longer fun, this can be a serious sign that perhaps it’s time for you to move on, especially if running the firm has become more of a stressful task than anything else. In fact, in the U.S., one-third of small businesses that close shop are actually doing well, but their owners simply lost the drive to keep them going!
While single proprietorships are easy to fold up, corporate entities (and partnerships, to some extent) are another matter. In the latter cases, perhaps all you need to do is to relinquish control and hire a professional manager to take over the helm of the business. Especially if the business is doing well in the first place. Of course, shutting down a dying business is easier to do.
The bottom line is that you will have to admit that there may come a time for you to let go of a dream. And the sooner you distance yourself from any emotional attachment and look at your operations with an objective eye, the better you will be able to cut your losses and exit gracefully.
And don’t worry, exiting gracefully is not exactly an admission of defeat! It can even be an opportunity for you to regroup and to try something new instead. And, hopefully, the entrepreneurial fire will be rekindled with a passion once again.