As an entrepreneur, you will undoubtedly have to make some tough decisions. Where to open up shop, who to hire, how much to charge and who to fire. While all are important, the toughest decision may come if and when you have to shut your doors.
For a small business owner, deciding if it's time to close up shop can be a lengthy, draining process, according to Peter Raffalski, executive vice president,Wealth & Wellbeing Institute at Gibraltar Private Bank & Trust.
“You are talking about people who have made a significant investment, not just financially; they are often sacrificing things like family and friends, other things that are important to them,” Raffalski said.
However just because one business venture has not proven to be a success, that doesn’t mean your days as an entrepreneur are done for good,he said. So many factors come into the success or failure of a business--some that an owner has no control over-- that it’s impossible to tell what will and won’t work out.
“I’m sure that history will show there are a lot of successful businesses run by successful folks that had numerous past business failures, “ Raffalski said. “Sometimes the difference between successful business people and not is the ability to make a hard decision, pull the plug and move on.”
So how do you know when its time to call it quits? Raffalski identified four signs it’s time to move on and close your doors.
No. 1: Profitability. For most business owners, it can take years to turn a profit. However, Raffalski said if you hit the five-year mark and fail to break even, it may be best to eat your losses and close up shop.
“Its always a good idea to have a time frame in mind where if the business is not profitable, you need to move on,” he said. “Whether you’re in business by yourself or with partners, have a time frame for at least break-even profitability.”
No. 2: Time investment. You may have to work hard to get your business off the ground, but working nonstop without an end in sight can’t sustain.
“If you find yourself having to work basically 24-7 to make the business work, that may be a sign it's time to exit,” Raffalski said. “Even if you’re able to compensate yourself financially, if you are unable to take time off or be sick, you have a business issue and exiting might be the only strategy in that case.”
No. 3: Personal fulfillment and happiness. Although these factors may be harder to measure, when it comes down to it, entrepreneurs need to be happy with their chosen path.
“Partnerships, time commitment, there should really be a fulfillment. If the business is no longer fun, it's time to consider moving on. For most people, it's intuitive.”
No. 4: You have maxed out your value. If you can no longer gain value from the business, Raffalski said closing isn’t the only option you have.
“It might be appropriate to sell a business. You may not have value in a year from now, or it may have grown to the point where its not longer sustainable because of capital, or a skill set. If a profit can be achieved [in the sale] then all the better.”