When is enough, enough?

Editor’s note: Michelle Stockman is an independent consultant with her company, Fort Smith-based Msaada Group. Stockman earned a bachelor’s degree from Loyola University-Chicago in communications and fine arts, and earned a master’s in entrepreneurship from Western Carolina University. Her thoughts on business success appear each week on The City Wire.

I was standing on the side of the expressway, watching cars, trucks and motorcycles whiz past, amazed at how fast 70 mph is when you realize how vulnerable you are to speeding blocks of metal.

As I watched the tow truck pull over in front of my sick car, my mind was filled with instant questions while thinking through quick decisions.

Everyone knows how much I love my car. I bought it shortly after my mom passed away, and I used to take Sunday afternoon drives through beautiful rural North Carolina to drive through my grief. This car, Buzz, is a member of my family as far as I’m concerned, and we’ve been through a lot in our 130,000 miles together.

While some routine work was needed for my aging car a few weeks ago, I was ready to hit the road again as soon as the freshly washed Mini strutted past its newer kin at the shop.

However, on a trip to Northwest Arkansas, Buzz shut down the entire car due to the alternator giving way. The next 24 hours was filled with figuring out where to take the car, how to get it there, what was wrong with him and so forth. Meanwhile, thoughts of wondering if the additional repair costs were worth the effort versus considering other auto options (especially after snide comments from the auto makers’ cousin dealership in NWA). After considering the math of the cost of repairs versus the cost of a down payment, you begin to wonder how much is too much to save my metal baby.

Likewise, business owners and leaders (particularly with young start-ups) are brought to the brink of very difficult decisions. Like my car, a business becomes a part of the family. It is the owner’s baby. That baby is the most beautiful, wonderful and talented child in the world and the rose colored glasses are wonderful despite the challenges of being a business owner.

After a while, reality about the business sets in, and you come to a point in the business where either it look great or that baby, in reality, is ugly. For those who realize the business baby is not so great, months (or longer) of torment set upon the entrepreneur wondering what can be done to rescue, grow or support the business until the magical break even to profit period begins. The business leader begins to wonder if the marketing strategy is off, if enough or the right kind of advertising is being used as well as if the market even likes the product or service. Additionally, the business leader begins to wonder if more money would fix the problems or if more time will work the problems out.

The inevitable decision arises at some point in every business; is it time to hand over, sell or shut down the business?

Shutting the business down is a gut wrenching experience where the realization that the dream didn’t work mixes with negative emotions and heartburn over lost finances. This is a decision that often runs in denial for far longer than it should, causing the negative emotions and lost finances to dig a deeper hole.

Is it a matter of enduring the hard times a little longer, investing a little more money or reviewing business operations? Timothy Stearns, director of the Lyles Center for Innovation and Entrepreneurship at the University of California, is quoted in “Knowing when to Close the Business” about the five warning signs of knowing when it is time to quit. Stearns notes “if a small business owner approaches their investment in this manner (i.e. setting limits on the time and expense they are willing to use in the business) they will have better clarity on their situation … if they don’t start making money at a certain point they should walk away.”

Joseph Anthony on Microsoft Business lists the top five reasons to consider closing a non-performing business, when:

• The debt-to-asset ratio is on the rise as this can bring the business to being over-leveraged. This puts the business in a position where normal sales and revenue cannot repay the business loans;

• The business not only loses money, but the losses increase. This indicates not only a small phase that may naturally occur with a business, but a negative trend that seldom reverses;

• Your inventory turnover slows down. This coincides with number two in that the slower inventory turns the less cash flow there is to replenish stock as indicated by lacking sales;

• You’re unable to raise more money for the business. The banks are not as stingy as business owners make them out to be as they have experience in lending to a variety of businesses. They have also seen the signs of a business gone bad as well;

• You’re not having any fun. “If you get up in the morning and you can’t stand the thought of going in to run your business, if the Great American Dream of self-employment has become your own personal little nightmare, it’s time to take a hard look in terms of your mental health.”

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Stockman can be reached at [email protected]