Business Closures. How does it happen? What can you do?

When a business closes suddenly, it can be a soft ripple in a pond or a clap of thunder that roars through a community, upsetting and affecting everything around you.  But in business, this happens.  Doors close.  That’s it.

Still if you are inside this experience, it can be a crushing experience.  Part of you is wrapped in the business.  You sink your heart, your senses, your money and/or the money of investors, venture capital.  It hurts.

So what can anyone do to prevent or if there is no other choice close a business?  It really starts at the beginning.  Plan to start a business where you have the location, the funds to pay and promote and market and can run it through the hard spots and the downturns until it turns a profit.  When you are a small business that operates out of your home or an office, this can easily be accomplished and maintained.  We so many times get an idea about a business that we miss one vital factor.  When planning a business, it isn’t just location.  It is culture and habits and activity around – like walk up business – that needs to factor in before you start.

I had a friend who wanted more than anything to open a gallery in Pioneer Square.  I looked at the financing, the planning, the traffic of the area and I felt strongly that it would not work.  I was asked why not?  There are successful galleries throughout Pioneer Square.  Absolutely true, but how they created the business, how they developed customers to sustain and maintain the success of the business is just as vital.

The short end of this is that the gallery failed. The gallery could have started in a home or a lower cost space.  When the customer base supports it, then you can open a gallery anywhere within the city and those customers will follow you.

The Empty Space theater moved into the theater space at Seattle University and even with a $1 rent, it failed.   The Empty Space had moved several times over the years, but this one time, even when it only cost a dollar in rent, created or enlarged a debt that could not be addressed, let alone paid.  The Board of Directors made a cut and dry decision and shut down the theater.  Even though the Empty Space had been in existence for over 30 years, the perfect move turned into the Perfect Financial Storm, and it closed.

With all the foreclosures happening around us, with the cost of gas affecting every type of business, every small business has to take time to restock the plans in the new conditions.  We can be so busy running the business that we never see the end coming, or we see it, but do not want to recognize it.  So the struggle to survive begins, but the outcome will be the same and because of the struggle, the ending costs will go up. 

The smart thing to do when there is no other option is to close the business as soon as you can. Stop the financial bleeding.  Then look at the whole picture.  Can you reduce and/or renegotiate your current debt?  Can you financially afford to pay it down and pay it off?  If a pay schedule can be agreed to, you are in position to work it through and come out free and clear.

This brings up the nasty reality of bankruptcy.  It saves you from your debt and your creditors, but it ruins you financially for years.  It creates a Trustee that will take control of the debt, reduce it and put you on their payment schedule.  Sometimes they will cancel the debt and everyone walks away with nothing.

The key here is to keep your eyes open to what is happening within and outside of the business.  Schedule a day once every three months or six months to sit down and take stock of how the business is doing, what is wrong or right, what is working and what could you do better tomorrow?  With a little effort, you can see the choices clearly, make good decisions and keep those options and your business healthy.  When you see a problem that can affect your business, Slow down or stop. Take the time to understand what is going on and build a plan to resolve the problem or in the case of a closure, make a soft landing as you shut down the business.  This is how any good business plans it closures.  Most of the time it can be as simple as retirement.  Sometimes it’s a lost our lease sale. 

And sometimes it is just bad timing, financial strain, credit ballooning, but the same choices factor into this situation as well.  Let the emotional impact sink in, then look beyond and build a plan that works for you and the business.  Call creditors and work out a schedule and a payment that will satisfy them.  What knocks me out is that the very large debt can be extended and accepted more easily than the small debt where the creditor or bank will squeeze every penny out of you.  Bankruptcy is sometime the only option, but if you plan it, it cannot only allow you to take the hit and survive.  It can also give you time to recover and reclaim your credit and try again.

There is no magic here.  And the solutions stated here need to adapt to your unique situation, but this is a vital part of business, and in small business, we should be more acutely aware of this elephant in the room.  We do not have to feed it, but as long as we keep tabs where it is, we can avoid it and keep our business successful in the present and future.