What’s the Optimal Time to Shut Down Your Small Business and Move On?

by Amos Z

Sometimes, things just don’t work out in your favor, and that’s okay because you’re neither the first nor the last entrepreneur to experience failure.

Small businesses had a tough time pushing through the pandemic, and even after it subsided, many of them had trouble getting back on their feet.

While some managed to fully utilize the government grants, others barely scraped together what little of their company they had left to break even on their investment.

Data shows that 50% of all small businesses shut down within the first year, and the rest will have to stand the test of time in a market saturated with large companies dominating every corner of it.

With this in mind, the best course of action may be to just shut down operations and start anew, whether it’s with a new project or a completely different type of investment.

Assess your financial standing

If you’ve been experiencing severe losses over the past couple of months, you may already have a good grasp of what the state of affairs is in your books.

That being said, once you find yourself at a crossroads in terms of where you want to take your business, it may be time to do a full assessment of your company’s financial standing.

Start with your revenue and slowly move on to your cash flow, expenses, and any projections for future income, and if you feel like you can retain profitability, it may be for the best to continue running your company.

However, if the outlook is less than desirable and it’s looking like several months of continued losses, the best thing to do is to quit while you’re still ahead, as you may be able to salvage some funds and invest them in another business endeavor in the future.

Is hibernation a possibility?

If you feel like completely closing down operations isn’t the answer, you could potentially look into putting your business in a suspended state until you feel things are getting better.

This is usually referred to as “hibernation mode“, and it helps preserve a company’s assets without having to shut it down entirely.

One thing to note is that hibernation mode should only be used if you feel like there’s hope for your business in the future market, as your assets will inevitably depreciate with time, effectively losing you the money that you could’ve withdrawn by closing down your business.

Of course, a well-timed pause button can mean the world to some business owners, and carefully examining your current situation will help you determine just how effective a hibernation may end up being for your business.

Voluntarily dissolve your business

Unfortunately, some business owners are forced to completely deplete their company’s resources in order to keep it above water for as long as possible.

At this time, scaling down is out of the option, and if you feel ready to pursue a different path, the best course of action is to voluntarily dissolve your current business, which does have certain drawbacks.

The main disadvantage you may face is the fact that dissolving your business will allow for other companies to eventually use its name, and while the time frame for this will vary from state to state, you should do your research before filing for dissolution.

Another thing to keep in mind is that dissolving your business comes with a plethora of financial and legal steps to keep track of, and you’ll want to discuss them with your business partners before a mutual agreement for voluntary dissolution is made.

Plan for the future

One of the greatest traits we have as humans is our ability to learn from our mistakes and your business endeavor can and should be used as a learning experience.

Every mistake you’ve made is one you won’t be making again, and closing down your current business may help you understand where you went wrong and what you can do to improve any business you start in the future.

Moving on from a failed business endeavor can also help you grow as an entrepreneur, and it’s the main reason why experts will tell you not to be emotional about your business efforts, no matter how much of a passion project some of them may have been.

Starting from scratch takes a lot of courage, and it’ll take everything you’ve got to start a new business after experiencing failure, but it’ll make you into a much more experienced business owner.

Bottom line

There’s nothing to be ashamed of when it comes to failure, and even the most seasoned entrepreneurs have experienced it at least once in their lifetime.

It’s part of growing as a business owner and closing down a failed business is the only way to move on to bigger, better things.

Keep these tips in mind when your company begins to go under and you’ll be able to make the right choice without breaking a sweat.

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