Love Hurts - When It's Time To Quit Your Business
We invest more than just time and money into our businesses. That's what makes it harder to let go.
A few years back, a young Middle Eastern family opened a small donair shop in one of our many neighborhood strip malls. A popular choice: Edmonton is in the running for the donair capital of Canada. I wasn’t a regular but I did order takeout once or twice each season, sometimes dining in with my family. The brothers and sister who ran the restaurant were friendly and the food — I always ordered large cheese donairs with everything on them — was great. From the foot traffic I counted while waiting for my orders, they seemed to be doing good business. I didn’t know their numbers of course, but, from the outside, the restaurant seemed to be working.
Then Covid hit. Restaurants shut down. Habits changed. When I went back after a long hiatus, the mood was noticeably different. The family still greeted me, still took the order, and still prepared the food. The food was still delicious. But, in their movements, their interactions, their subdued conversation, I could see the energy and enthusiasm had dropped. And the foot traffic had gone down. Where before I counted four or five orders coming in during the time I spent waiting, now, there were maybe one, maybe two others. On a subsequent afternoon visit, I saw the sister’s children sitting in a corner booth, heads down and doing their homework, patiently watched over by their grandmother. She smiled and nodded when she looked my way.
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Early this summer, N. and I chose an uncommon route for an evening walk. It took us in front of the donair shop. But the donair shop was gone. In its place, another family had opened an Indian restaurant. The new restaurant has a 4.9 rating from 86 reviews on Google. The donair shop had a 4.5 rating from 212 Google reviews. From what I can see, the new owners respond with a few words to every review. The sun also rises as the Good Book says.
I remembered the Middle Eastern family, their donair shop, and their decision to move on this week. As part of our weekly training sessions, some of our staff were going over the financials of a long-term client whose numbers have been deteriorating for a few years. The business used to be profitable. It had a healthy retained earnings balance, very reasonable for its industry, size, and growth prospects. But rapidly declining sales in the post-Covid era produced a string of losses on the annual income statements. Costs weren’t cut fast enough. As with all businesses, costs could only be cut so far. Those losses wiped out retained earnings on the balance sheet. The account is in a deep dive into negative territory.
Our client has responded by drawing on personal funds, credit cards, and bank financing. That is, they’ve increased business debt and financial risk in order to make the balance sheet balance, and to buy time. It feels wrong from the outside: a stay rather than a reprieve. But that’s just the problem. I’m on the outside.
The decision to quit or give up on a business is — like most endings and major life changes — difficult, personal, and emotional. I’ve been through it myself and I’ve seen many other small business owners go through it as well. Here are some reasons for giving up on a business that I’ve gathered from the Internet. While focusing on the owner’s emotional state, they’re still encouragements to see the situation clearly and try to come to terms:
Your dreams have stopped; You don’t like your customers
Your health is suffering; You’d be happier without your business
You’re not having fun anymore; You feel like there’s no way out
They make sense. But they’re also symptoms. Small business owners take the work home. Bad emotions are more likely to follow bad financial results. The reverse is also true. If the business was healthy and prospering, these bad feelings wouldn’t be in play. If they are in play, then something else, unrelated to the business, is going on.
The “When to Quit” question is much easier to deal with if, like me, you accept that the purpose of a small business is to maximize the compensation to its owners. If the business is doing that — if it’s fulfilling its purpose to an extent that satisfies the owners — then the question of quitting, if it comes up, will usually have more to do with life goals outside the business than anything going on inside. (On occasion, the owners will see some unfavorable industry changes and decide it’s better to get out while there’s time. It’s hard to have that kind of prescience or timing though.)
It’s when the business isn’t living up to its financial expectations — that is, it’s not fulfilling its purpose — that the quit question becomes a live one. At that point, the answer is straightforward: You should quit your small business when its financial results aren’t where you want them to be and you have no plan for getting them there.
There are many ways in which financial results can lag or disappoint. I’m going to list some of them out. It’s not like they’re subtle or hard to detect. These problems are going to show up in your business bank account, they’re going to show up in your personal bank account, and they’re going to show up in your financial statements (if you have reliable financial statements).
Sales aren’t where they need to be; they’re not getting off the ground, they’ve stopped growing, or they’re falling
The business has a problem turning a profit; it’s not profitable enough, it’s never been profitable, or it’s stopped being profitable
The owners aren’t getting enough out of the business; they’re not getting a market wage for the work they’re doing; they’re not receiving distributions to top up their compensation
The business has a cash problem; it’s not generating cash, either because it can’t turn a profit or because it can’t manage its working capital; or it’s running out of cash; there’s no buffer in the bank account
The business is piling on debt; most of it is coming from cash infusions from the owners, some of it is going on to credit cards, some of it’s from external lenders
When the financial situation is no good, seeing the issues and coming up with a plan to fix them is a way of asserting control. As long as you have this sense of control and you still believe you’re capable of steering and managing the business, you have a chance to turn things around. The plan has to be realistic, of course, and you may not be in the best position to decide on that. You may also realize that turning around your business is beyond your abilities and resources. That’s a good reason to seek help but not necessarily to quit.
The plan has to be more than scattered thoughts or speeches. Entrepreneurs tend to be impulsive and inclined to act. That’s great at the start but, if you really want to succeed, then it’s important that at some point you learn to manage, to plan. The plan allocates resources and coordinates effort. It has a timeline, an objective, and measurable outcomes. It’s a way to test and influence the variables that affect the business’s finances. You know whether the plan is working or not. You can adjust and update it as you see its results.
A good reason to quit your business is if you don’t understand the financial issues it’s facing and you don’t have a plan for addressing them. A business in that state, under that kind of leadership, is paralyzed, wounded, and exposed — just waiting for more bad things to happen. You has no control over its fate. It’s on its way down; it’s better to detach than get dragged down too.
When it comes down to it though, even when the decision to quit seems clear or forced, there’s usually some hesitation. We can’t be certain. We can’t be sure of the future or of ourselves. Things may turn. So we clutch at straws. No matter how many things go wrong, we can be swayed by one thing that goes right.
What’s more, though they figure large in our thoughts and calculations (and keep us up at night), it’s more than time and money we invest in our businesses. What makes quitting especially hard is there’s a part of ourselves caught up in the sunk costs — the part that persuaded us, the part we believed in. And now, when we’re feeling unkind, we’re liable to say the part that didn’t amount to anything or to enough of something; the part that wasn’t good enough to last; the familiar part (along with habits and routines) we’re giving up on to now go find some unknown something else.
The whole process of quitting indexes high on the personal toll scale. Quitting hurts. Like breakups hurt. For people who believe they’ll only ever love that one person, breakups are a catastrophe, a dividing line between the colorful and gray parts of their lives. Entrepreneurs, small business owners, risk a lot, but they don’t have to risk it all, financially and emotionally, with any one venture. Success, while elusive, can come in many forms; it doesn’t have to be just so. And it can come after many tries, as long as there’s will and resources left to try.
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