There is no legitimate entrepreneur who starts a business to lose money and close it down. Winding up a business is painful for it represents broken dreams but, in some cases, it could be the only logical step left to take.
Inventor Thomas Edison, the man credited with inventing the light bulb, said that lots of people fail because they do not realise how close they are to success when they give up.
Another inventor, Graham Bell — inventor of the telephone — had this to say: “Sometimes we stare so long at a door that is closing that we fail to see one that is opening.”
Entrepreneurs, thus, face a dilemma. Does one hang on to a loss-making business with the expectation of better things to come, or does one close shop to seek other opportunities?
Topping the list of reasons behind business closures is a lack of profits. A business must generate enough revenue to cover expenses and give the owners a return on investment. A business that is not making a profit is unsustainable.
A business may fail due to the owner or manager’s bad decisions, intense competition, unviable location and changing consumer preferences. An economic downturn, such as that experienced during the Covid-19 closures, can result in fewer customers, which in turn affects a business’s ability to generate revenues.
A business may close down due to the owners’ circumstances, such as illness, migration or retirement. For example, last October, an iconic private school in Nairobi’s Tena Estate announced it would be shutting its doors in December because the proprietors, a couple, are getting into their 70s.
The manner of closing down a business depends on its nature and size. If you are operating an open-air roadside stall, all you have to do is stop showing up. Sooner or later, somebody else will take up that space.
For a small shop, the business owner will have to notify the landlord if in a rented building. There will also be expenses associated with removing the shop items and carrying them off to wherever they will be stored.
Legally registered companies have a much more complex process of shutting down. Certain procedures have to be followed to ensure that pending taxes, bills, salaries and loans are settled. If the right procedures for winding up a company are not followed, some types of taxes may continue to accumulate, resulting in a huge tax demand in future.
Closing down a business can be emotionally devastating. What can be done to salvage a troubled business before making the hard decision to shut the doors?
According to the Forbes Business Council, cost-cutting is a great way to save a troubled business. This can be done by negotiating discounts from suppliers, cutting down employee expenses, identifying unnecessary spending and eliminating waste.
Energy-efficient lighting and electrical appliances can help lower electricity bills. If your business has a vehicle or you have to hire one, maximise on each trip to cut down fuel costs.
