Signs It Is Time to Close Your Business

By QuickBooks Canada Team

3 min read

Failing in business is unfortunate. Whether the causes for subpar business performance are financial, emotional, legal, personal, or otherwise, it is smart to know when it is time to call it quits. Knowing when to close a business can actually save a lot of time, money, and energy.

Net Profit Isn’t Where It Should Be

The income statement is a very clear guide of whether a business should remain open. It summarizes the amount of revenue coming in versus the expenses going out, and the net result of these two groups of accounting line items. It is sometimes difficult to look at the income statement with objective eyes, as business owners tend to fall easily in love with their businesses. But if the net income is consistently negative and you have done all that you can to improve the line items, on both the revenue side and expenses side, then it may be time to call it quits. A business can only survive for so long without positive revenue numbers to maintain its existence and fuel its growth.

Bad Cash Flow

Understanding your business’ cash flow is critical for deciding whether to keep the business operating. Cash flow statements summarize the cash coming into the business and the cash going out. This financial statement is distinctly different than an income statement in many ways, one being that the income statement includes noncash items. Cash flow gives a much clearer picture of the “pulse” of the business. If a business consistently shows negative cash flow, it is a sign it cannot meet its obligations and is essentially treading water, or slowly sinking. Regular negative cash flow indicates the business is simply too expensive to operate. If cash flow is bad and you can’t increase cash flow, decrease the time it takes for revenue to come in, or tighten the amount of expenses, this is a sign it’s time to close the business.

Your Health Has Deteriorated

Sure, running a business is stressful, and there will be many sleepless nights. Short-term health discomforts are part of the job, but if you’ve experienced major health problems due to the demands of your business, it may be a sign you need to reevaluate what you are doing. Weight gain, weight loss, prolonged fatigue, consistent stress and/or anxiety, sleeplessness, and more can be surefire signs the business is running you and you aren’t running the business. It may be wise to have a checkup and discussion with your doctor to ensure your health and daily business-related activities are okay. But if you question whether your small business is affecting your health, it probably is, and it may be time to call it quits.

Your Personal Happiness Evaporates

Besides financial numbers and health, a very clear sign it is time to close the business and find other productive endeavors is your happiness level. If you aren’t enjoying the day-to-day business activities as you once were, and irritations from business follow you home to your family and friends, it is likely a sign the business should be closed. Short-term discomfort and mood changes happen to every single business owner. But long-term unhappiness is a clear sign to close shop. Life is too short. As Steve Jobs said, “I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.”

Your Business Mission Becomes Nebulous

You probably started your business with a clear idea of how you wanted to improve the lives of others, solve a problem, or change the world. Over time, as business operations and goals evolved, your mission statement likely changed as well. If you find yourself realizing your current day-to-day activities have strayed very far from what you originally intended to accomplish with your business, it may be time to reevaluate and see whether you should continue or cease operations. Continuing can easily affect every metric previously mentioned above. There are many reasons across many dimensions that can determine if it is time to close a business. Financial reasons are obvious and clear, while other reasons may be more subjective. Either way, having a keen sense of the major issues that can trigger a business to close is key to being a successful and smart small business owner. Money is one thing, but remember, your health, happiness, and fulfillment are equal gauges for whether you should continue to operate a business.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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