How to Know When to Close a Business

How to Know When to Close a Business
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When Is It Time to Close Your Business?


1. Maintaining the Very Bottom Line

You can pay bills, but there is no profitability. If this is only a very recent occurrence, there may not be a problem; but in tough times having this same fact repeat over a year may be a signal. Selling or closing a business while it is still breaking even may be the best way to keep yourself from serious financial problems.

2. Any Advertising is Too Expensive

You can’t pay for advertising. If you don’t have the money to advertise, you can’t bring in new business. One of the first signs of trouble is the fact that the business owner allows the advertising to be cut in half, or stop completely, thinking it will pick up again when the business increases. Unfortunately, the business doesn’t increase without getting the word out that you are still in business. If you are having to chose between a utility bill and advertising each month, it is a warning sign that you may be nearing the end.

3. Constantly Using Credit Extensions

You are constantly extended to the limits of vendors’ grace periods. If you find yourself paying the minimum payments and always carrying a balance or you are paying consistently on the last day before your account becomes delinquent, this is a definite sign. If this is combined with not paying one or more vendors or creditors to keep another from collections, it is a good chance that closing the business will become a serious consideration within the year.

4. The Market Doesn’t Support You

Your sales are not improving regardless of efforts made by your employees or yourself. You can conduct all of the crew meetings, motivational workshops, and training sessions you want – there is a limit to how much employees can contribute to keeping a business alive. Closing a business may be a consideration when the market will no longer support it.

5. You Can’t Pay Yourself

You are taking cash advances from your business because you cannot pay yourself. This is a sure sign you will be closing the business within a year. If you cannot pay yourself, why are you working for your business? You need to earn your own income. If you must look elsewhere to support yourself, your business is no longer viable.

6. You Can’t Afford Inventory or Supplies

You are slowly phasing out products or offerings because you can’t afford to have them. I knew a pizza shop owner who stopped selling certain toppings because he suffered more loss by having the items than by telling someone he didn’t carry it any longer. A restaurant that started as a steak and seafood restaurant had been reduced to spaghetti, fried fish, burgers and soup because they couldn’t afford to buy anything else. Manufacturers who finally decided on closing the business have reduced from three shifts to one or laid off everyone but the owners. If you find yourself not ordering new inventory or canceling orders to cut costs, you should consider closing the business.

7. Upfront Payment Demands

Your creditors, vendors or utilities are demanding payment upon delivery. Another sign is when you can still take delivery of inventory, but you must pay cash; and you must pay it either in advance or to the trucker delivering the supplies. An alternate view of this is when utility companies are telling you that, in order to stay out of collections, you need to pay weekly or two months of service to keep current.