Throughout my career, I have worked with startups. As comes with start-ups, I am always surrounded by the young. I’ve advised many young entrepreneurs — particularly recently — and they all have the same fire in their eyes, which is fantastic and truly inspiring. Keeps me young. Having been a young entrepreneur myself, I can always empathize with them and do my best to help them out in good times and bad.
Over the course of some general conversations with younger clients, they tell me about their goings on and reveal all sorts of red flags. Two of the most common red flags are feelings of impatience and greed. I then step in and advise them on ways to correct themselves, be patient, and moderate, and why they should stay in business.
Let’s assume that your business is not ending because you’re being acquired by another company. It may be tempting to just close shop, but it may cause more problems than you think. Financially, legally and professionally, dissolving too soon may hurt you in ways you may never fully recover from. Here are some reasons to stay in business until things begin to look up:
You may have to buy out your partners. Do you have the funds to do it? Will it set you back to zero, personally? Anyone who invested in your business will want return on it. You and your lawyer and/or accountant will need to review the terms of your contracts to see whom you might owe and how much.
You can’t expect to cash in a million-dollar business within a few months of opening it. If you close too soon, your credit score will go to hell and you will be considered as high risk by banks if you try to reboot yourself with a new company.
Even if you did amass a ton of money within the first few months of opening, you likely committed to so many people — landlords, creditors, suppliers, and lawyers, just to name a few — whom you’ll have to compensate before you can take care of number one. These folks will come after you with papers and process servers if you don’t do right by them.
You may need to bring in a third-party valuation to help develop a distribution amount. Once your partnership is dissolved you can typically expect each partner to assume business assets and liabilities based on percentage of ownership. This is a best-case scenario, assuming you’re not trying to get away with anything.
No matter how bad things are, do not sell for the sake of jumping ship. If you went into business to establish yourself and you’re going to give it up less than a year later, your peers will almost undoubtedly be able to label it as a spectacular failure. So will your client base — regardless of its size.
Some Advice From One Small Business Owner To Another…
Give the business more time to establish itself and do right by the clients you have — no matter how few. These are base ingredients for a successful business.
This isn’t a trip to the OTB, this is business. People’s jobs and money are on the line — including investors. We’re in an age of instant gratification but you didn’t start your business to sell it less than a year in.
Contact Brinen & Associates to discuss your small business needs.