There is always a chance that your business will fail. It won’t even always be your fault. Sometimes, the market suddenly crashes or the demand plummets in your field. According to the Small Business Administration, only half of the small businesses reach the end of five years. That is a staggering number considering there are millions of small businesses out there.
If you are unlucky, then your business might be one of those statistics. But you shouldn’t despair. A failed business is not the end of the world. The important thing is to exit from the business with as many resources as you can. The key to this is recognizing the warning signs and pre-empting things so that you don’t have to contact an experienced bankruptcy lawyer to bail you out of trouble. Here are some signs that it is time to close things up.
Zero to Negative Income
The biggest sign that your business is in trouble is when it is not making any money or you are losing money. It may not be that obvious. You have sales and you are getting customers. The problem is that all the money you earn is being eaten up by your expenses. You should not be looking at only your sales but your final income after you deduct all the expenses.
Zero income is not always the death knell of a business. Most businesses don’t end up making money until after their first year. Some don’t even make money until their third year. The important thing is to be aware of your profit margins. If your gross and net profit margins do not match those of others in your industry, then you should worry.
Monitoring your cash flow is important when it comes to ensuring your business is doing fine. Take note of the performance of your business and be ready to pull the plug before you lose too much money. You may even end up in mild debt but it is better to be saddled with a small amount of debt instead of trying to revive a dead business.
Your Employees are Leaving
Another good indicator of your business is in trouble is that your employees are leaving. Workers do not resign from a job lightly. Starting in another company is not an easy task and no one wants to do that unless they have a good reason to do it. While there are several reasons employees could be leaving, one of the big ones is that they don’t trust the financial stability of the company.
Employees know a lot more than their bosses think. They notice when there are low sales, salary freezes, and even canceled bonuses. They will also be aware of the competition is getting too strong on the market. You can’t blame them if they start looking for greener pastures.
The big problem is that employees leaving can start a cascade of expenses. While you don’t have to pay them anymore, you may need to replace them. This means spending money on hiring and training. Besides that, if you lose experienced workers, you lose their knowledge which can make things even more difficult for your company.
If you see an exodus of employees, then seriously consider shutting things down.
The Market Changes
You don’t always expect your business to fail. A few years ago, you might have been the top of your field. But customer demands change and that can mean your product or service falling out of favor. A good example of this is Nokia. The cellphone giant sold millions of cheap and durable cellphones during its heyday. But it didn’t adapt enough to changes in the market. Now, the company is never even heard of anymore.
The market leaving you behind might not even be your fault. Sometimes customers suddenly latch on a trend that you are not ready for. There might be other factors. For example, if your restaurant suddenly loses all access to foot traffic because of a new route showing up. If you are not able to adapt, then it might be time to call it quits before you lose any more money.
It is always heartbreaking to say goodbye to a company that you put a lot of effort into. But closing early allows you to conserve resources. Instead of wasting even more money in a failing business, it is better to start fresh. This time around, you will know better and there is a good chance that your business becomes a solid success.