by David Dunn, Georgia SBDC Several years ago Kenny Rogers had a hit song called "The Gambler" with a catchy line that said "Know when to hold them, know when to fold them." This line is, of course, referring to a poker player's hand of cards. Knowing when to fold a hand (minimize losses) is an important part of being a good poker player. Owning a business is much the same. The business owner is betting he can make money on his investment in the business. And, as in poker, there are times when he should know when to fold. An owner may invest more in the business than he can recover by closing or selling it. However, it just isn't logical to add $10,000 a year to the original investment year after year in a losing business. Sometimes, the financially prudent thing to do is get out with as small a loss as possible. In business and in poker, the object is to make money over the long term, making enough money to justify playing the game. Everyone has a different idea of how much money this should be based on lifestyles, goals, etc. However, there are some points to consider when assessing a business situation. Return on investment is one such point. If there is $100,000 invested in a business and the average profit is $10,000 per year, the return on the investment is 10%. That figure sounds good, but on average, investing in the stock market will earn more. Many business owners believe that their return on an investment should be at least 15%, or their money is better invested elsewhere. Of course, this amount is on top of any salary the owner receives for his work in the business. Also, the owner must remember the perks. There are things that he can do through the business that he could not do if the business were closed or sold. For instance, certain assets which the business depreciates (copiers, computers, etc.) often are available to the owner for personal use also. Likewise, he can use business trips as mini-vacations. The perquisites of owning a business are many and varied, so they enter into the equation. Most small business owners have invested not only money but also heart and soul. This dedication makes it extremely difficult to decide to close down or sell the business. Often, the business has become like part of the family. Parting with the business would be like losing a close relative. There can be no monetary value put on this aspect of closing, and sometimes this factor is priceless. Just as it is important to plan ahead when running a business, it is also important to plan ahead when leaving the business. Tomorrow is going to come whether the business continues or not. If the business closes, what would the former owner do? Of course, if the owner sells the business and makes enough money, he could retire. Unfortunately, that usually isn't the case. Therefore, would he start another business? Would he go to work for someone else? Could he work for someone else after working for himself for so long? Would employers want him, his skills, his education, and his experience? These are important questions to be considered before the closing the business. Afterwards may be too late. When closing a business, an owner must discuss the proposed plan with an accountant and an attorney. The accountant may be able to save the seller a lot of money in the process of closing or selling by helping sort out the tax repercussions, and he can help determine a selling price as well. An attorney will make sure any contracts are correct and that the owner complies with the applicable laws. Considering getting out of business raises a lot of hard questions with few easy answers. There is not a lot of written material available about this topic. Fortunately, there is a Small Business Development Center nearby. Contact the SBDC for help with this type situation. To obtain small business assistance contact a consultant at a Small Business DevelopmentCenter.
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