When should closure happen in a small business and when you should start thinking about it?

Along with insufficient capital and unexpected growth, poor decisions and lack of research about the market are the reasons behind the closure of small business.

Starting a business is tough, but shutting a business is even tougher. And this goes without saying the the idea to close a business can be even an emotional and heart-breaking decision for all. But then letting things go beautifully in life is an art. Building something from scratches and then it falls like a house of cards, nobody surely dreams of that!

But knowing when to end the game can not only save you from further heartbreak but from draining a huge amount of money. On the other hand, there is no dearth of advice people tend to give when you are facing personal or professional crisis. But then how to bounce back from a failure business, and how to learn from it? Leaders or founders must use soft hands as well as hard hands to be successful. Yes, they must be pivotal but you can’t shy away from making the call to close or shrink an operation. It is always better to call a spade a spade!

Insufficient capital and unexpected growth are the two main reasons that contribute to the closure of the business. Not getting the expected results can also be an indicator that the business is not doing well and it is time to close a business. Also, the struggling, the grind and the lack of capital are the reasons why many entrepreneurs decide to call it off. Also, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives can take a plunge in the game. There can be many reasons behind this, but poor decisions and lack of research about the market are the main.

So, if you are not sure about your decisions and if it does involve some serious risks, then it is best to close your business. Deciding to give it a rest is one of the hardest decisions that any entrepreneurs could make. You will feel attached to the business since it was a result of long hours of hardships, sleepless nights and personal sacrifices.


Insufficient capital and unexpected growth are the two main reasons that contribute to the closure of the business

Ineffective Business Planning

To start a new thing, planning is crucial. Prior to making a start, small businesses often overlook the importance of effective business planning. Entrepreneurs, who fail to address the needs of the business through a well-researched plan, are setting up their companies for serious challenges. Similarly, there is also a need for regularly reviewing your initial business plan to meet insurmountable obstacles throughout the course of its lifetime. To avoid pitfalls associated with business plans, entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers, and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

Missed Annual Revenue Targets? Check if it’s time to close a business

Three years after kick starting your business, it is advisable to check your company’s financial status. If your balance sheet doesn’t reflect profit and you are still out of money, then this does not mean that it’s time for you to take a loan. Taking a loan will not serve the purpose rather it would put you further into debt. This is the time, when you should seriously consider cutting your losses so that you don’t wind up in personal financial trouble. After all, the whole idea of incorporating, or having limited liability is to keep your business and personal finances separately. It is advisable to establish a time frame and try to learn the growth of your company, against that time frame. If you find that your company has not even reached the minimum point for profit, especially after this time frame, then it is time for closing the business.

Personal Funding

Always consider using your personal finances the last option to repay the business loan. This is considered as one of the biggest red flags where business owners personally put money into the business. This is a big blunder if owners are using their credit card to do so. If this happens more often than its time to take a call. At that point, even if the business has real potential, still it is perhaps better to put a brake. Taking on that debt by using your personal assets will not only hurt your bottom line but will distress your family and health. Take a break, regroup and start again. Accept that you have learned a lot of great lessons in the process. Learning is a subtle profit when you close a business.

Losing the Purpose: A sign to close a business

Think of the purpose that motivated you to start the venture or the business! This may happen negatively when your business starts fading and you become almost unrecognizable. This can happen because, to save your business, you unintentionally start toiling hard. As a result, you fail to consider your social obligations. This makes you socially maladroit and causes problems in your personal life.

Hard to Handle

You are subjected to stress and pressure when your business is failing. This can be extremely tough on people, who have no prior experience in handling pressure or are inexperienced in damage control. Also, for striving a business, you need regular planning and strategies to cater to the present and future markets. Time to time, it is necessary to expand your team as your business grows to handle the growing competition, handle stress and pressure. Don’t think twice about taking the decision so that you can deliver smoothly. Do not try to take orders or requests that are taxing for you and your team as it can cause a huge loss for the company. The helplessness to generate sufficient business profits is one of the common reasons to close a business. Business owners spend money on inventory, production overhead and general business expenses when operating a company. But spending too much money in an attempt to generate revenues can result in low profits. Dip in profits mean that business owners are unable to receive a sufficient personal income. Rather than suffering through low or negative profits, business owners should consider closing their company.


Think of the purpose that motivated you to start the venture or the business.

Personal Health Takes A Spin

 Health is wealth. There is an old saying: “If you lose your wealth, you have lost nothing, but if you lose your health, you have lost something.” If you find yourself becoming unhealthy, through weight gain, weight loss, fatigue, or heightened anxiety, then you should gauge whether your business is worth a decline in your physical and mental health. The dreadful feeling that you used to get in the pit of your stomach before walking into your 9-to-5 regular job. The feeling that forced you to quit your regular job and start your business in the first place. Have you started getting that same feeling again while walking through your office lane? If yes then this might be a serious sign to reconsider at least the direction of your business.

This can be seriously true, when you feel like running from your own business. These are the early signs that a person tends to avoid because it is about his/her business. But dragging this will make things awful. The worst part is this will not only self-destruct but hurt your family and deteriorate your relationship at the same time. Heed them early enough to save your company. End result, the emotional and financial hardship of your failed business will destroy you.

Your Mission Loses Its Shine

Have you started forgetting why you started the business? It could mean one of the two things. First, your mission was unclear, and it is still not clear. If vital checkpoints like purposes and a clear targeted customer are missing, then you could be spinning your wheels, spending unnecessary money and still not feeling fulfilled. Second, it could mean that you have lost your passion for your mission, one of the biggest drivers when times get tough. Without this drive, who or what else will push the business forward? And at the end, both things usually lead to the same unfortunate outcome. This is definitely a clear indication that your company is heading toward the danger zone. There is no denying that what was once an absolute passion can convert into a sheer burden.

You Love Your Product. But Do Your Customers?

Is your company providing a solution that your customers are actually looking for? Or is your company centred on something you care about and really, really want others to care about, too? If it is the latter, and you are not seeing positive feedback in your balance sheets, then it might be time to pull the plug. That’s a key sign to close a business. Sometimes the entrepreneur is so obsessed with his own product that he thinks he has the best product in the world. And everyone would fall head over heels in love with it. However, the exact opposite happens, and the short-lived honeymoon of starting up fizzle fast. 

When Key Employees Shift Gears, it’s time to close a business

This can be really depressing, when your key employees and strategists leave you to join something else. Don’t get disheartened, rather take it as a caution. When your expert team starts dispersing and resigning from your company, try to scrutinize yourself with a few questions. Why are your employees leaving? Have your employees tried to tell you something, and you simply didn’t listen? Have you taken care of your employees properly? Are you paying them enough money? Try to learn from your mistakes and rectify them if you want to save your company. Make the connection with your employees. Make them realise that they are an integral part of your business. Include them in decision making activities. Ask for suggestions. Always boost their morale and treat them like partners rather than employees. But if it is beyond your fix and correction, then put the shutter down.

How Competition Analysis says it’s time to close a business

Competition represents the number of companies in the market competing for consumers. Small businesses can face tough competition in an attempt to maintain sufficient market share. This is highly likely that the owner closes his business if competitors continuously produce products at a cheaper rate. Owners unable to compete with larger competitors can suffer from decreases in market share. Large competitors can also offer new products that the small businesses are unable to compete with. 

Try to see if your products and services still have the market? In this technological advanced age, the market strategies and assumptions that you made at the time of the launch of your product may not be working anymore. You should try to incorporate the latest trends that are happening in the market. Study the needs of the customer so that you can upgrade your products and services accordingly and make them available. But if you can’t upgrade according to the market, then you will be left behind. And as a result, you will never be able to pick up. 

Preeti Verma
Preeti Verma
An alumna of IIMC, Preeti writes on global and domestic business, life cycle of a business and its stages. Her fourteen years of stint includes The Economic Times, Business Standard, Financial Express, Tehelka, Businessworld and Times Internet.

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