Where is Multilinks? Where is ST. Soap? Where is Concord Group? Where is Okin Biscuit? Where is OLX? Studies show that 1 in every 12 businesses close down every year.
Between 2018 and 2022, 1.9 million micro, small and medium enterprises (MSMEs) have shut down in Nigeria. Over 1,400 South African businesses have been liquidated in 2022.
Aliko Dangote ventured into the Noodles industry; it did not succeed. He also attempted Banking (Liberty Merchant Bank), but it did not succeed.
No matter how perfect your business plan may be or how much money you have to invest in your business, there is only a 20 percent probability that your business will succeed.
Starting a business is hard. Struggling to keep the business is harder. Shutting down the business is the hardest, especially when you rely on your business income to provide for your family.
It hurts more if you are emotionally attached to your business. Nothing is as painful as going into huge debt to rescue a sick person who eventually dies.
There is no point in struggling to keep a business that will eventually fail. There is no pride in carrying the business card of a dead business around.
In business, losing some money is okay. Losing it all is foolishness. You have to know when you to accept fate and move on. In business, learn to give up sometimes. It is not a weakness; it is common sense.
Every business experience peaks and troughs. But when times are tough, how can you know whether you are going through one your business might be able to recover from or if it is the beginning of a permanent decline?
If you cannot get your business back on track in six to twelve months and debt is piling up, you have two options: sell your remaining assets or declare bankruptcy.
Shutting down a business may mean selling it off to a buyer or merging it with a profitable business. You can also decide to stop offering your services or halt production and distribution.
No matter how much you affirm “Nothing dies in my hands.” Prayers and positive affirmations alone do not make businesses succeed. Businesses fail for various reasons.
Sometimes, these reasons can be beyond your control. Other times, it may be your fault. Whichever way, if you can read the handwriting on the wall, it will save you from further heartbreak. The earlier, the better.
The decision as to what to do with your business when that happens should be made long before it happens. Your business plan must have a page for “Worst Case Scenario.”
Every business owner should have a comprehensive exit plan in place from the very early stages that include what happens if the business hits the wall and it becomes impossible to keep going.
The time to close down your business is ideally one year before you are forced to close down your business.
- When your cost exceeds revenue or cash flow is negative
Do you have sufficient cash in the bank to keep going and get through the infancy stage of your business? Without cash, time is not on your side. A lack of cash flow means that it may be the right time to quit.
When your cost is more than your revenue, this is not the time to take a loan or bring in an investor. Although it may temporarily solve the issue, it’s a mistake that can catalyze your chances of failure.
On no account should you borrow money to pay your employees’ salaries. Before you take a business loan, ensure that you will be able to repay it if your revenue takes longer than expected to rebound.
Using your money to repay a business loan that you can’t afford is not a healthy place to be. No! It puts you further in debt. Instead, you can cut costs or downsize.
In response to the economic downturn, 1,021 tech companies across the world laid off 154,186 employees in 2022, including over 1,000 employees in Africa.
If your business doesn’t have enough savings to survive for at least six months, there is fire on the mountain. If your business is spending its cash reserve much more than it is generating for an extended period, you will deplete your business’s financial resources.
An alternative is to define a financial threshold that you don’t want to cross. If your business reaches or nears that critical point, then you’ll know it’s time to close up shop.
Do businesses experience growth and loss at the same time? How long should my business continue if I find myself in this scenario? It is possible. You can be generating revenue, yet recording losses. Positive cash flow is NOT profit.
Facebook did not become profitable until after 5 years. Amazon for 9 years was not profitable. Amazon lost $1 trillion in the last 16 months. Uber is losing billions of dollars yearly. Kuda Microfinance Bank lost ₦6 billion in 2021 yet grew to over 2 million users within 3 years.
There’s a level in economics where you can continue to remain in business, despite losses. When you cross that threshold, you are advised to shut down or change your line of business. The moment your revenue is less than your variable cost, you quit.
If your total revenue is equal to your total cost (variable + fixed), you can remain in business.
Some businesses generate revenue from Day 1, while others spend more resources on Research & Development and may take a longer time to achieve product-market fit, break even and consequently become profitable. Always observe your financials to know when kasala don dey burst.
2. When it poses too much risk to your physical and mental health
Business owners are two times more likely to have suicidal thoughts and two times more likely to be hospitalized for psychiatric ailments. It takes physical and mental energy to run a business.
It takes a healthy person to build a healthy business. Doing business in Africa is so hard that you may die before your time if care is not taken.
There is a difference between tiredness and constant fatigue. Take time to evaluate if you are burnt out and need a vacation, or if you need to hire additional staff. If these do not help, you may want to consider selling or closing your business.
It is better to quit a business that costs you peace of mind than to be a CEO in the graveyard. No business is worth your life.
Every business has its own risk. If your business poses too much risk to your health or puts your family’s well-being in danger, it may be a good time to shut down that business.
If you find yourself always sacrificing family time and other valuable relationships for your business’s sake, it may be a time to re-strategize or quit. Don’t cause psychological damage to yourself and your loved ones.
As a business owner, the day mental and emotional stress becomes unbearable, is the day you should say goodbye to your business. Life is so precious and too short. It is only the living that can launch a business afresh.
3. When you cannot navigate through a government policy
In 2020, MTN Group announced its exit plan from Afghanistan, Yemen and Syria due to the increased complexity of operating in those regions.
In February 2021, the Central Bank of Nigeria under the Buhari-led administration put a restriction on cryptocurrency transactions.
The government also banned Nigerians from using Twitter for seven months. These policies affected the growth of many businesses negatively
Imagine developing a business plan for your bike-hailing service, and you wake up one morning to find out that you can no longer operate on major highways in one of the most populous cities in Nigeria.
This is what the management of bike-hailing startups faced in Nigeria – Opay, Max.ng, Gokada, and many others when the Lagos State Government banned commercial bikes and tricycles from operating along the major highways in Lagos starting from 1st February 2020.
Well, the bike-hailing startups in Lagos took to the streets and social media to protest the ban, but the government did not change its mind.
Opay converted its motorcycles for logistics and delivery. Peer-to-Peer (P2P) model was devised to counter the crypto ban. Users downloaded VPN to access Twitter, despite the ban.
Sometimes, it may be difficult to navigate through a government policy, especially in a regulated industry. It is even much more difficult if the penalties are serious. No business remains the same after surviving a fine or penalty.
4. When your mission is accomplished, redirected, or lost
I was in my third year in the university when the university management decided to de-congest the hostels. As a result of this, many students were compelled to look for accommodation outside the campus.
There was a high demand for accommodation. People were ready to pay. I saw this and would not let this pass me by.
Because I did not know most of the locations outside the campus, I collaborated with a friend of mine who was an indigene. He did the searching while I did the planning. I built a system that made us easily accessible and credible. That was the beginning of my journey as a Real Estate Agent.
We had no capital. I mean, we had no monetary capital. Whenever a client called to check out an apartment, he was made to pay a non-refundable consultation fee, whether or not he wanted the apartment.
This was excluding the agent fee that came into our pockets as a commission. Na so business take start be that. That was how we launched NOVEL Homes and Hostels.
We maximized the first-mover advantage and made money. After the real estate space in that location became too saturated, we exited the space.
Sometimes, business owners may lose passion for a mission if they do not feel fulfilled or if it does not align with their values any longer. A business owner may want to shut down his beer parlour because of his ‘born again’ religious beliefs.
Other times, as business owners grow, their mission becomes clearer and they may have to plot a new course or have a new focus.
If you want to go back to your 9-5 job or if running a business is no longer in alignment with your life goals, there is no shame in throwing the towel.
Lately, one of our clients had to shut down her Shawarma and Barbeque business to acquire more skills in a Culinary School.
As soon as you feel you have accomplished your mission in a particular business, leave the stage with your full chest.
5. When your business idea is just a fantasy you are passionate about
Is your business providing a solution that customers are looking for and are willing to pay for it? Or is your business centered on something you care about and want others to care about, too?
If your customer base is not increasing at a significant rate despite your marketing effort, it may be a red signal for you. Sometimes, your ‘fantastic’ product/service may be the problem, not your marketing strategies.
Sometimes what you think is the best product in the world and everyone would be falling head over heels in love with it may turn out to experience the opposite.
There is no need to push a ‘fantastic’ product that customers do not need. You will struggle to sell, despite your marketing efforts. Simply, stop production and quit that business.
Some business ideas are profitable but not sufficiently profitable and won’t be getting better in the future. Some business ideas are only profitable in the long term and not in the short term.
If a thorough evaluation reveals any of these, it is time to take emotions out of the equation and be factual with your decision.
6. When the economy is no longer favourable
In 2020, SafeBoda exited Kenya due to the negative economic effect of the Covid-19 pandemic that affected the global economy.
In 2022, the bike-hailing startup also exited Nigeria because it considered the okada industry as not being economically viable and the Nigerian market unprofitable for its operations.
The impact of the Russian-Ukraine war on the global economy is severe. When inflation and recession hit a nation, many businesses will shut down. The rising cost of energy and labour commonly mitigates the growth of a business.
The high tax rate can make it difficult to do business in some countries. If your business depends largely on imported products, unfavourable exchange rates may threaten your business growth. Investors may begin to pull the plug and the market may experience low activity.
No matter how rugged you are, there is usually a limit to what you can manage or control. When macroeconomic factors are against you, except you have an alternative means of income, you can ‘hibernate’ your business and wait patiently till the economy eventually recovers.
But if you cannot wait to see light at the end of the tunnel, your best option is to quit that business and try something else.
7. When the market has moved beyond your product
Where is Nokia, Mr. Biggs, and Kodak? In business, if you innovate too late, other innovative companies will force you to shut down. If your competitors are gaining your customers every day, it means you have been left behind.
If you cannot figure out what your competitor is doing differently, nobody will tell you to shut down before you do. Customers are too impatient to forgive any business that is too slow to innovate.
In this age where technological advancement is disrupting every industry daily, Sometimes, the market strategies and assumptions that you made when you started your business may have become obsolete.
You should try to assess the current trend that is happening in the market and study the needs of the customer so that you can upgrade your products and services and make them successful.
Doing a SWOT analysis regularly can help you think through your strengths, weaknesses, opportunities, and threats, so you are not blindsided or paralyzed when faced with a challenge.
8. When you are not meeting your goals
Every business needs time for momentum to grow. Some businesses even need a longer time to become profitable. However, in order not to quit your business too soon, you need to track your progress and personal goals.
If you cannot point out any tangible result that you have been able to achieve apart from starting the business, this is a pointer that all is not well with your business.
You took a break and closed your office/shop temporarily to re-strategize, yet nothing seems to be working. It’s time to swallow your pride and let your soul say C’est fini.
In conclusion,
Ensure you have done everything you can do before you give up. When every solution you know fails, speak to a reliable consultant immediately.
Shutting down your business does not make you a failure. You don’t lose in business. You either win or learn. For every debit, there is a corresponding credit. Learn your lesson. Shutting down your business may be the beginning of greater heights.
© Kingsley Ndimele
Your Reliable Consultant