Starting your own business is one of the most emotionally, financially, and physically straining processes a person can go through. Personally, I would rank it up there with divorce, moving house, or other major life events. Statistically, only 50% of small businesses are still trading three years after launch, with the vast majority of those which fail being run until the very last moment as the business is tipped into the oblivion of insolvency.
Coping with business failure is tough, whether a sole venture, or if you have partners involved, and there are a few key reasons for this:
• Ego & Emotion
The stigma of your business failing, and the assumption that you will then be branded a poor-businessperson.
How your friends, family and business ‘stakeholders’ (suppliers, employees, etc) will view your failure
Your own emotional attachment to a business you were passionate and proud of.
The responsibility you feel towards your employees, stakeholders, business partners and so forth.
• Financial Reasons:
You may have taken out financial commitments (mortgage, loans, leases, pensions, investments etc) based on your business income
You may have become accustomed to the lifestyle which the business gives you
You may be worried about the personal repercussions you would face about any large exposures your business carries (eg: supplier payments, wages, rents) particularly if you have undertaken personal guarantees.
You may be worried about the legal repercussions for you and your family of a sudden closure (eg: employment litigation, and creditors).
In many “business in distress” cases I have been involved with, the ego & emotion factors are the overriding one, with the ex-owners of these company typically becoming very disheartened and often not going into business again, opting for gainful-employment. This attitude is not one conducive to an atmosphere of entrepreneurship, and one which I’ve found very typical in the UK. In many other countries (USA, India, Italy, Canada), the attitude to failure is a very different one, where instead of people worrying about the emotional impact, they carry “every failure as badge of honour” (a phrase seen commonly during the .com era, where more than 80% of start-ups did fail, often haemorrhaging truly outstanding amounts of cash in the process). In the .com cases, the entrepreneur/s typically dusted themselves off, and within weeks, were straight into the next-big-idea, with more vigour and gusto than before.
"Courage is going from failure to failure without losing enthusiasm."
IDENTIFYING when your business is on that slippery slope is, though, very important, and can ensure a graceful and well structured exit.
“Business is getting tough”
peaks and troughs are inevitable in any business, particularly retail, but you have to assess the troughs carefully. Are your competitors in a similar situation? Are you exploiting all your marketing/promotions/sales capabilities? Are there any predisposing factors for why this trough has occurred?
“Cash flow problems”
By far and away, the most common reason for business failures is poor cash management, where the firm is unable to honour commitments to suppliers, stakeholders, or employees. In many cases, these cash-flow problems can be predicted (through running regular cash flow forecasts) with banks and others being more understanding, and supportive, than business owners would predict!
Of course, another reasonably common reason for businesses falling over is as a result of litigation, but again, a good risk-analysis strategy, coupled with decent insurance, can help in these scenarios.
”Keep your ear to the ground!”
Are there any major shake ups in your market? Are your competitors planning anything big? Or struggling? What are your customers & suppliers saying? What are your employees saying? Often this feedback can help you react better to changes in your organisation or in the marketplace, and if it’s a critical scenario, help you plan for the inevitable. One of the best examples here, local to Manchester, was the change in the structure of the textiles market, as companies transitioned from being wholesalers, to importers and agents. The companies who responded quickly are now prospering, but the majority, who didn’t see the change coming, were killed off.
HOW TO DEAL WITH THE INEVITABLE?
OK, so you know your business is on that slippery-slope to closure… It’s never a good scenario, but some careful planning, and thinking, can ensure its dealt with as gracefully as possible!
1. DON’T PANIC!
While clearly not the best situation to be going through, there is no need to panic (easier said than done). The calmer you remain, the calmer those around you will remain, and the easier your job will become. Remember, humans are naturally very “open” creatures, so those around you WILL sense your state of mind.
2. Inform your KEY stakeholders:
If your business is entering such difficulties, its important for you to inform those with a vested and immediate interest, such as your employees, your suppliers, key customers, and even your banks. At best, they can help you, at worst, it will prevent you being seen to have withheld information. KEY ADVICE here is to resist the urge to deal with these things via email and ensure you handle them personally. The personal touch is an incredibly important, and underrated factor.
3. Plan your financial position:
You must plan a cash flow scenario right to the end, to understand how much of the outstanding debt your company bears can be dealt with. Based on this, you can honour what you can, make your own personal plans, and be in a better position to advise banks and receivers of the financial state of your organisation. Remember that at this stage, you can start to sell business assets in advance, to clear debts (the amount of business closure stock on ebay, for example, is truly outstanding).
4. Plan your closure and any handover scenarios:
You need to take a cathartic look at your company, and assess anything you can do to streamline a closure. Can you help your employees gain employment with other firms? Can you hand over clients or contracts to any equivalent firms? Do you need to make any formal press statements?
So ultimately, remember, businesses DO fail, it’s a fact of life, but – for what its worth, anyone who has the balls to do something different, and be an entrepreneur? They have my full and complete respect.
Click to read full article...