Small Business

Closing a Business Doesn't Have to Mean Failure

Dr. Jeffrey R. Cornwall, Christian Science Monitor
Adam Gault | Getty Images

Sometimes an entrepreneur reaches a crossroad. While the business that they have started shows potential, they may come to the realization that the only chance it has of being sustainable will require raising money to grow it to the next level. Bootstrapping is always a good path to start a business, but sometimes a certain level of funding is still needed to get to a sustainable scale that can earn the owner an acceptable income.

The first thing to determine is if the business can absorb the cost of any additional funding after it grows to the next level. Run detailed budget projections based on the growth you are considering that include the cost of the outside money, be it interest and fees with any type of debt or expected returns if the money comes from an investor.

If the cash flow of the business looks like it will be able support the cost of the outside money, the entrepreneur needs to make sure they are ready to deal with the changes that come with the funding. Debt financing will probably require personal guarantees and may also come with certain restrictions that may limit decisions you can make about how you run your business. And investors will likely expect to become involved in major decision-making about the business.

The entrepreneur must carefully consider whether getting the business to the next level is worth the added hassle and risk that comes with outside money. If it isn't, it may be time to seriously consider working toward selling the business if they can, or possibly closing it down in an orderly way.

The decision of whether to continue operating a business can be one of the most painful experiences an entrepreneur can face.

As small business owners, we often consider the people who work for us to be more like family than employees. Closing the business that has been how they have made their living can make you feel like you are abandoning them.

As entrepreneur, our identity and our egos become tied to our businesses and its success. Ending a venture that we have spent much of our waking lives working in and worrying about creates an emptiness and sense of real personal loss.

But there are times in the career of an entrepreneur when he or she has to find a way to set these feelings aside and make a rational, clear-headed decision about the future of the business.

Remind yourself that moving on from a venture that is not sustainable can be a new beginning. While some may tell you that closing a business is a mark of failure, experts would disagree with that. For example, venture capitalists will often favor funding entrepreneurs who have had failed businesses in the past, as they know they can take what they learned from that failure and avoid repeating past mistakes.

Don't think about a business that did not make it as a personal failure. If you learned from the experience and can take those lessons into your next business — that is success.