How do you know it's time?
There are several warning signs that may indicate to you it's time to change or close your business.
One is if your debt-to-asset ratio is on the rise. Every business occasionally has to borrow money to purchase equipment or other assets. However, if your debt as a percentage of your assets is consistently on the increase, you could become over-leveraged. Some experts say the magic number is 50 percent.
Likewise, a rising level of debt-to-shareholder-equity indicates that a company's leverage is increasing. While a wise use of leverage is a part of standard business practice, the greater your leverage, the more unstable your business and the less equity you maintain in the company.
Another red flag is when you are losing money in ever-increasing amounts. Showing a tax loss is not necessarily a devastating blow, but if your company is losing money in "real terms," you may have a problem. It's not uncommon for businesses to lose some money in their early years, but if those losses increase rather than decrease in time, you may not be able to overcome them.
Another sign is when your inventory turns over more slowly as time passes. If items remain on your shelves too long, you may be heading for trouble.
And, if you're having trouble raising money for your business, it may be a sign that things are going as well as you'd like to think. Your banker may be attempting to help you see the writing on the wall and stay out of deeper trouble.
The final sign – and some might say the most important one – that you may need to consider transitioning the business is when you stop having fun running it. You must enjoy what you're doing, or you will resent the enormous sacrifices that business ownership demands. If you're finding it hard to go "to the shop" every day, then you might want to reflect on your future with the business. Life is too short to spend it doing something you don't enjoy.next 