(5 minute read – failing business)
Hi there accounting fans,
We’ve all been there before haven’t we. We’ve worked too hard and put too much time into a venture that we just don’t want to let go. This could be a course in uni that you’ve lost interest in. It can also be a hobby that just doesn’t interest us anymore. Sometimes, it could also be a relationship that has turned toxic and unhealthy.
For business owners though, this often is a business that is failing. We love our business too much to let it go, and we keep throwing money at it in the hopes that it will fix itself.
In this article, we will look at some fallacies that business owners believe in when their business is failing and we’ll discuss how we can overcome them!
Failing business fallacy #1: I’ve spent too much to give up now!
Here’s the scenario:
The business owner has spent $5,000 to buy stock for their product. Another $2,000 to advertise it and $3,000 to get a fancy website setup to sell it. Altogether that’s $10,000 of their personal money that they’ve invested to get the business up and running. But then sales are low, customers don’t seem to want to buy the product and the bills keep piling up. Next thing you know, they are behind on taxes and drowning in debt.
But this business owner perseveres. They push on even though they know that the business isn’t making any money. This is because they’ve ‘spent too much money’ to give up now.
It’s a common scenario. The business owner has grown too attached to the business that they can’t/won’t leave it. Everyday they tell themselves: ‘Today it will get better,’ but it doesn’t. And they keep putting more money into it. Their relationships suffer because of it. They get into more debt to prop up the business, which creates even more trouble for them down the track.
It is a vicious cycle, but it is one that they can can get out of.
Getting out of fallacy #1
The easiest way to get out of this fallacy is to stop and take a look at your business finances and ask yourself two simple questions:
- Am I making enough money out of this business to survive comfortably on?
- Is running this business making me happy?
The first question asks if the business is financially viable. The second question, which is more important, looks at whether you have the motivation to keep running it.
If you answered ‘No’ to either one of them, you need to think of ways to change them into ‘Yes’. Otherwise, it’s time to let go.
Failing business fallacy #2: I love this business/industry too much!
Some of us will start a business doing what we love. This could be a dance studio, arts and crafts or drawing comics about finance and accounting. Some of us will be succcessful in monetising it. Many of us won’t. But still, we push on because we’re doing what we love. Unfortunately, love alone doesn’t put food on the table and a roof over your head. Unless you have a partner that can help sustain your household expenses, running a business out of your love for it is unsustainable.
This fallacy is easier to get out of than the first one as in this case, you have some options:
Getting out of fallacy #2
Let’s say you love baking. However, in your current business model of only targeting farmer’s markets, you find that you are overworked and tired. On top of that, the rent you have to pay at these farmer’s markets are HIGH! You can see the warning signs, but you push on out of your love of baking (and of going to farmer’s markets).
The good news is that you don’t have to give up on your business just yet. The bad news is that you may want to rethink your current business processes.
Maybe consider alternative distribution channels? How about making baking goods which are less perishable and can be sold online via delivery or home pick up? How about opening a little corner store in the central business district? What about hiring staff to help take some of your workload off the business?
Continuing poor business practices out of the love of the business is just bad judgment. Businesses always need to be adaptable to the changing circumstances. Don’t romanticise the ‘good old days’. The good old days died yesterday. Live for today, plan for tomorrow.
Failing business fallacy #3: But my customers need me!
Look, you’re a business owner. You run a business. Not a Charity.
Read why you should not be running your business like a charity
Your customers are grown ass adults (unless you’re running a kindergarten – in which case, it’s their parents’ problem) and they’ll get over you going out of business. If your business is not meeting your financial needs, you need to stop and think about your options. Usually whatever love you have for the business/industry tends to dissipate when it is not meeting your financial needs. Hence keeping a business going because of your duty to your customers is a BAD IDEA.
It becomes a very one-sided, unhealthy relationship. You are the constant giver, giving your time and energy to your customers but getting very little back in return. It may also be that you’ve created this imbalance by not setting healthy boundaries with your clients, not learning how to say no to them when necessary.
Read why it is important to say no
Either way, you’re trapped. On one hand you want to continue servicing your clients the best you can, on the other hand, you’re not getting your money’s worth. So you’re screwed. Fortunately, there is a way out of this fallacy.
Getting out of fallacy #3
It’s time to lay down some rules! Have a think about what your time is worth and what the market rate for your time should be. Come up with a new pricing strategy for your products/services.
Need help setting a pricing strategy? Read here to find out more!
Be sure to communicate this new price to your clients. You might lose a few – but you’ll find that those are bad customers anyway. The good ones that understand your value will stay. If you are in the service industry (like business consultants, marketing advisors, lawyers and accountants) you need to be crystal clear about what your services entail and how much and when the client will incur extra charges if they ask more of you.
If after trying your best to communicate your new prices, you end up losing all of your customers (an extreme example), don’t worry! This gives you the chance to re-evaluate your products and pricing and you can start again fresh. Or, you could just let the business go and do something else. After all, you have no customers to worry about now!
Is your business a failing business?
Is often the hardest question to answer. As pointed out, we business owners sometimes delude ourselves with fallacies to believe that our business is viable, long after it started to fail. Sometimes we can turn things around. Sometimes we can’t. When we have done all that we can and our business is still failing, the best thing we can do is to just let go.
I’ll end this articles with some wise words I read in a fortune cookie fortune at a Uni orientation week event (don’t judge me):
“If at first you fail, then try again. If you keep failing, then stop being stupid and try something else,”
Stay smart team and as always,
Stay positive!