I came into contact recently with an old student. He had a fantastic business idea selling a product that was growing in Europe and had enormous potential in the Australian market.
He rang to say he had just finalised his business closure. He was a little bruised and battered, but thankful for the process to be behind him while looking ahead to how he can use his experience to help others. He thanked me for some of the insight I had provided when he couldn’t see things clearly – as he admits being blinded by the enthusiasm he had for the idea.
On the surface of it, the business seemed destined to succeed. Scratch the surface and you start to see how getting just one part of the small business equation wrong can end in disaster. The management of cash flow, and the planned access to working capital while profits catch-up to expenses is vital to success.
Many of my clients are two years into their business. Their energy is waning and they just want to know when they will be set to lie on the beach in Tahiti counting their money.
I often say – developing a successful, sustainable small business will take longer and cost more than you ever plan for – before you can develop a sustainable profit. You need persistence, patience, passion and preparedness.
This begins when you start your small business with your eyes open. Going in to business is not the easiest path to travel. There are inherent risks with starting a business – you risk money, opportunity cost and public face.
The development of a business plan can help put those risks into perspective. An honest appraisal of the money and time it will take to be successful – however you define success.
Once your plan is developed you are wise to ask– what if I took those 2 /3 years that it would take to turn a business to profit and what if I put the same amount of energy and money and into something else? The plan should be used to talk you into business or to talk yourself out of it!
You need to ask what you are prepared to risk – how much time and money and energy. And you have to be prepared to walk away of it’s not working. If you have tried all the feasible ways of making your business work, not just tipping in more money but redeveloping your marketing plans and business model.
There can be a lot of shame attached to admitting defeat when in comes to business. But you are foolish to hold on to something that is not working with your current resources in the current market.
Closing or selling your business before it becomes a financial burden takes courage. Actively using your financial documents to assess the financial health of your business can help you identify the right time to close or sell your business.
But there is also no shame in changing your mind. The statistics behind the numbers of businesses that ‘fail’ in the first five years, don’t take into account that owners did not become bankrupt or these businesses didn’t become insolvent, just that the owners just changed their mind. They found the ‘economic conditions’ too hard to sustain a profit and would prefer to work for someone else.
However, if your business is struggling with debt, it may feel like bankruptcy or closing your business is the only option. But before you do anything, seek advice from a professional. There can be many different ways of repaying your debt that don’t involve bankruptcy or closing your business.
However if the only way out of dealing with financial woes is through bankruptcy and liquidation you can get help to do so.
If you are set-up as a sole trader or partnership you can file for bankruptcy. When you become bankrupt, you are declared by law to be unable to pay your debts. It will get rid of most of your debts and debt collectors will stop contacting you. Bankruptcy lasts for 3 years and can affect your financial future, so it should be considered as a last resort.
Liquidation only applies to companies. When a company can’t pay its debts and goes into liquidation, it stops operating. Company assets are sold in an attempt to pay off the debts.
Risk taking is important to the entrepreneur and you need to take some risk in order to succeed. Some famous people who have been broke or bankrupt in their first iterations of their business include Walt Disney, Abraham Lincoln, Henry Ford and Alan Bond. But when at first you don’t succeed you can try again with the lessons you’ve learned and the networks you have developed.
If you can come out the other side with a fresh perspective, your growth as a person and a business leader can be exponential.
Start by knowing what you’ve got to lose and be prepared to lose it or fight for it!