Many of us harbour dreams of breaking away and starting our own successful business, but the harsh reality is that small business failure rates are as high as 63% in the first two years of trading, according to a study by Absa.
While it may be hard to admit defeat, it’s important to know when the dream just isn’t working out. Executive coach Refilwe Khumalo offers the following examples of when it’s worth cutting your losses:
- You aren’t meeting annual revenue projections
Review your company’s financial status in two to three years. If you’re still not turning a profit, it may be time to move on.
- Becoming someone you don’t know
If you’re constantly working to salvage your business, abusing substances to cope or unleashing your frustrations (verbally or emotionally) on family, friends or employees, it might be time to put your well-being first and close the venture.
- You just don’t have the passion any more
For many entrepreneurs, taking sole responsibility for every aspect of the business can be more detrimental than beneficial. Assess whether your business is in a position to meet all its demands. If not, see if you can afford to hire or outsource. If not, you need to consider whether your profit’s worth all the time you’re investing in the venture.
Closing up shop made easy
For many entrepreneurs, reluctantly admitting that it’s time to close up shop comes with its own set of problems. The process can be as tricky as it was setting the business up in the first place.
“If you run a sole proprietorship, you can wind it down yourself,” says Khumalo. “If you have partners or investors, it will need to be a group process.”
If you’re unsure of how to go about it, she advises seeking professional guidance from lawyers, accountants, brokers and other business specialists in tying up all aspects of your business.
She also offers the following tips:
- File dissolution documents
If you fail to legally dissolve your business, you’ll continue to be liable for taxes and filings. If your business is operating as a general partnership or sole proprietorship, you may not be required to formally dissolve your business, but it’s still a good idea to notify the SA Revenue Service and creditors of the change. If you’re uncertain whether you need to file dissolution papers, consult a small business attorney.
File an annual return for the year you go out of business. If you have employees, you must file final employment tax returns for them too.
- Business debts
Notify all lenders and creditors of your plans to dissolve the business and settle remaining debts. Contact the business associates to whom you’re indebted or who owe money to you. If you’re unable to pay your debts, you may need to consider filing for bankruptcy.
- Close accounts
Don’t forget to close your business bank account and cancel your business credit cards.
It’s not the end of your entrepreneurial journey
Remember, a failed business doesn’t mean you are a failure. “Review where you went wrong, reflect on where you could have done better and – in the true spirit of an entrepreneur – keep your head up and start again,” says Khumalo. “You can take what you’ve learnt into a new entrepreneurial venture, join an existing start-up or get a job where you can add value with your experience.”