Should You Close Your Small Business? 3 Steps To Help You Decide
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Should You Close Your Small Business?
If you’re currently grappling with the prospect of closing your small business, you’re not alone. As the Covid-19 pandemic continues to weigh heavily on the world economy, a record number of small business owners are either currently facing this decision or have already closed their doors.
It’s an incredibly tough call to make but knowing when to exit your business can help shield you from unnecessary personal struggles or business debts. Alternatively, taking stock of your business situation might reveal an unexpected strategy for reorganizing or starting over.
In the end, only you know if you have the emotional and financial resources to keep your business going—but the following questions and considerations can serve as a starting point.
1. Honestly Assess Your Finances
If your business has been operating on a slim margin (or at a loss) these past months, you’ve likely been keeping an extremely close eye on your books. Even so—once you’ve reached a decision point with your business—you’ll want to carefully (re)assess your revenue, cash flow, expenses, and potential future income. This will help you pinpoint what your business needs and whether it can ride out the remainder of this crisis.
What are your current expenses?
Analyzing your business’s financial situation begins with taking a look at your current and future expenses. You’ll want to decide which expenses are essential, and which can be dropped, reduced, or postponed.
For example, if commercial rent is one of your largest expenses, you might review your lease and reach out to your landlord. Your landlord may be willing to reduce your payments, postpone your payments, or renegotiate the terms of your lease. If your landlord won’t budge, however, this may be a deciding factor in whether you can remain in your business location (without somehow increasing your revenue).
Payroll is typically another big expense. If you’ve already reduced your staff but are still having difficulty making payroll, you might need to scale down further, go into hibernation mode (discussed in the next section), or consider the possibility of closing your business for good.
You might also have the option to temporarily reduce your operating expenses by deferring your federal tax payments. The IRS’s Covid-19 Business Tax Relief Tool can quickly tell you whether your business qualifies for any tax assistance.
If you don’t have a bookkeeper, using a cash flow tool like QuickBooks can help you evaluate your future income and expenses over the next 30, 60, and 90 days and determine if your business has the ability to stay afloat.