When is closing your business the right choice?

August 1, 2017

According to the Australian Bureau of Statistics, more than 60 percent of small businesses cease operating within the first three years of starting. But what exactly is going wrong?

The Australian Securities and Investments Commission released a report into corporate insolvencies for 2011-2012 that found 44 percent of businesses suffered poor strategic management, 40 percent had inadequate cash flow or high cash use and 33 percent suffered from trading losses.

So why would a business that had been in business for 8 years need to close? What changed?

In a nutshell, everything but them!

In 2016, I took on a client who had been in business for 8 years in a niche industry providing a solution to customers with some profound results that changed not only the customer’s life, but the lives of their families too. The solution was sold for over $5,000 (but was delivered over 5 months). Two directors ran the business. One director worked four days a week, and the other director one day a week, but ran another very successful complimentary business the other four days.

The business had been ticking over, but was stagnating with little or no growth. I went in to review the business plan, marketing strategy, and the overall business operations. I needed to consider an overhaul of the existing processes and procedures, to review the costing of products and services and perform break even analysis, in addition to checking budgets versus actuals.

Using the findings from the data analysis, costings and break even points – I made suggestions for new processes all involving streamlined, largely automated technology to save both time and money, three distinct customer avatars, an overall marketing strategy, as well as new internal controls and budgeting processes and profit strategies.

So what went wrong?

  • Not a single recommendation was implemented
  • Not a single change was embraced
  • Not a single new technology advancement was trialled

The age old saying “ you can take a horse to water, but you cant force it to drink” resonated loudly.

An additional complication was that the main working director had chronic depression (diagnosed, but would not take medication) and was of the opinion that why should you change something that is working.  

A small example of something that was “working”;

A client, to finish the program, needed to complete 30 sessions of 90 minutes, and 16 of those sessions needed a qualified therapist to deliver them. Scheduling was done manually and repeated effectively three times – once on google calendar, then transcribed to a word a document to email to the client, and then the dates manually entered on MYOB invoices.  Every time a client changed or cancelled a session, the whole process needed to be manually changed in all three places. Working, yes. Efficient – hell no!  

A solution was suggested to automate this process, integrate with calendars (including the clients), accounting package (and take it one step further in automatically claiming from medicare / private medical health or NDIS). Changing this, would immediately save at least 2 – 3 hours a day of the admin person’s time. This time could have instead been spent on marketing and social media posts and content creation.

Another example was refusing to consider using other suppliers or at least follow up proactively on the service delivery of current providers. The website took over 20 months to go live at a cost of over $16,000 – including paying for SEO, Google Ad words, pay per click campaigns and technical monthly services that were never delivered.  Simple changes to website hosting would have saved $400 a year, and changing accounting packages and their bookkeeper, would have saved over $5,000 a year.  I am all for supplier loyalty providing they are deliver the best outcome.

The depression also played a large part in the decision to close the business as the condition impacted not only the staff employed in the business but the clients too. Customers and their families to whom the services were delivered were already overwhelmed with daily life and should have entered a nurturing welcoming sanctuary and environment. Instead they were unsure of what they would be confronted with.  If the business owner is not taking care of him or herself, then it is near impossible to make good business decisions or take care of the business.  Depression is a very real and often debilitating disease and needs extreme selfcare.

Ultimately a tough conversation needed to be had – change or close.  If you don’t grow or change with repaid technology changes you will get left behind or at least fail to thrive. Sometime closing or a restructure is the only option. Recognising this, and choosing this instead of being forced (through a liquidation) is often a tough, but very brave decision to make, and may result in the best outcome, as you are in a position to choose when and how to close to restructure.  In this instance, the choice was that the one director is taking early retirement and the other director is incorporating the products into her existing other business and implementing the suggestions made.  The original business structure is however dissolved.

If you are confident about your business but perhaps need a devil’s advocate or require a review mirror or someone to check if there is an Achilles’ heel in your business, or just a fresh pair of eyes – please get in touch for a big picture review.

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