Close your Business – is now the TIME?

Last week another bit the dust:  a really sweet  small company who I’d watched over the past few years as it grew successfully, I thought.  It won local NARI awards, seemed to be highly involved in community activities, built a perfect office on a main street in town and genuinely cared about both clients and employees.

It went bankrupt!  I hadn’t known the financials or watched the struggle with an ever-increasing debt load over the same few years — but that’s where, it turns out, most of the capital for these investments came from.  Investments in land and build-out – not to mention the huge owner distraction – investments in marketing collateral, upgraded computer systems and new office personnel.  There was, for a few months, a new salesman on staff as well being trained in the latest Sandler techniques – not an inexpensive investment.

The capital invested came from a home equity loan – you can see the rest.  The economy turned, faster and deeper than most of us anticipated, credit dried up even for those with good credit, consumer confidence plummeted and the company couldn’t afford payments on the equity line.  When the bank called the balance on the line a month ago,  there was no escape!

The owner would agree with at least two of the following “5 signs it’s time to close your business” written by Joseph Anthony on the Microsoft Small Business Center.

The first is:  “your debt-to-asset ratio is on the rise.”  He goes on to say:  “effective and prudent use of leverage is an accepted part of many sectors of American business.  But the greater your leverage or debt ratios, the more debt you have to service, the greater the drain on your profitability and the less equity you have in your venture.”

The second:  “you’re losing money and the losses are increasing.”  See the post referencing Jay Goltz’ May column.

The third:  “your inventory turnover is slowing down”.  That means that you’re doing fewer jobs in the year, using your capital less efficiently and making less gross margin.

The fourth:  “you’re unable to raise more money for the business.” This is HUGE – especially now; no one I know is able to increase their credit limit; in fact many have had it cut in half if not by 100%.

And the fifth, but not the least important: “you’re not having any fun.”  Although it is hard, if not impossible, to have fun navigating the tricky waters of this ‘great’ recession, if you’ve been scared, angry and upset for months now, unable to find a way to put the Rubrik’s cube of your personal and business finances in order, perhaps it is time to close your business.

Don’t make such a momentous decision alone – talk to your family, talk to your accountant and your lawyer.  Investigate all your options and then, even then, proceed with great caution.  None of us (even those in power) know how long this recession will last nor how deep it will go. But if you’re already at the end of the proverbial rope, take action to learn everything you can about those options, decide on one and don’t look back.

If you’re young, you’ve got plenty of time; if you’re older, you’ll pass the wisdom down to the younger.

Here’s where I’d insert the MP3 “keep on believing” if I knew how.

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