Despite your title, there is nothing small about becoming a small-business owner. In addition to the fact that small businesses represent the vast majority of all the companies that operate in Australia, topping 2.3 million overall, based on the latest data available from the Australian Bureau of Statistics, managing the day-to-day affairs of your own company can be a truly Herculean task.
As such, it's little wonder that so many businesses close every year. There is no shame in this fact. Sometimes, there are simply one too many factors beyond your power to fix.
If your company is encountering serious adversity, but you're not sure if the circumstances warrant permanent closure, there a few indications that suggest it may be time to move on. Although you should always consult a business professional before making a choice regarding whether to stay or go, being aware of the signs of impending insolvency can help you make a more informed decision that is best for all involved.
1. Costs of operation substantially exceed your returns
Not a single business person has launched a company and experienced uninterrupted growth. It simply doesn't happen. As with life in general, operating a company has its ups and downs, highs and lows.
Some industries have slimmer margins than others, such as the restaurant industry or construction. Thus, it might be expected that profits may be slim. But when you're constantly spending more than what you have, remaining open is unsustainable. While there is no specific dollar amount as to when it's best to call it quits, you may want to establish a benchmark for how much you'd be willing to spend before cutting your losses.
2. Customer traffic is down
Everyone goes through their slow periods. These ebbs are often influenced by the seasons, lifestyle changes or the economy slowing down due to a variety of factors (e.g. inflation, recession, pandemic, etc.).
Increasing demand requires adapting and responding to your audience and improving customer satisfaction by any means necessary. But if you feel like you've taken those efforts but they haven't borne fruit in the form of increased buying, you may want to seriously consider closing. Keeping impeccable records and receipts that establish a timeline of where you were at this time last year (or the year before that) can also help with this assessment.
3. Valuable employees are deciding to leave
While certain skills can always be taught, you may have personnel who were born to be in the position they're in, given how superb they are in that role. It's to the point where they are seemingly irreplaceable.
But if you've lost a key employee and your business has suffered as a result, this may also be sign of impending insolvency. Over 1 in 5 companies that responded to a recent poll from the Australian Bureau of Statistics said this was an issue that they were encountering, as it made them unable to bridge the apparent skills gap.
If upskilling hasn't worked and you believe you've earnestly sought out all available solutions and avenues to finding adequate replacements, there may be no other choice but to fold.
4. Lack the motivation to keep going
Anyone who starts a business has to get into it knowing that there will be good and bad times. It comes with the territory, as the very nature of life is change and how you respond to it. However, if you're not fully committed to riding out the storm, there may be no point in postponing the inevitable. In other words, if you've stopped caring or lost interest in something that you once loved, these may be indications that moving on is appropriate. This will take a lot of self-reflection, so it's important to be as in tune with your feelings as possible to assess your level of commitment or lack thereof.
5. You're not who you once were
Just as life changes, you may be a different person than who you used to be when you started your company even if that launch was just a year or so ago. Of course, you'll always be you, but passions, tastes, experiences and sentiments can change as a person gets older or their lifestyle adapts due to new responsibilities (marriage, raising a family and so on). There is nothing wrong with this fact. By embracing the new and improved version of yourself, you may be able to leverage all that you've acquired from your soon-to-be former business and put them toward building a company that aligns with the new you.
Insolvency isn't always the end. Sometimes, it can be the first step toward a different, more rewarding business goal. However, if your business is struggling and you want to know where to go from here, WMC Accounting may be able to help. Contact us today for an appointment and get expert advice on what is next.