Sunday, October 21, 2007

Forget the Store, Save your House! Planning When to Quit your Business

Author: Chris Lamela

You are in business for yourself or are seriously considering it. You’ve found your niche, done your homework, and even considered some downside scenarios. But whether you have already stared your business, or are about to, there is one part of the business plan few people are eager to consider: Where to set your limits if things don’t go so well and when to call it quits.

The word “quit” is contrary to the whole idea of starting a business, and you may secretly fear that to plan for it will somehow create a self-fulfilling prophecy. If things don’t go so well (and the rule of thumb is that 4 out of 5 times they won’t), it is amazing how quickly you can go into excessive debt – or even bankruptcy. When things get crazy, our judgment can get cloudy, and that urge to hold on just a little longer can be overwhelming. So setting limits ahead of time is a little like making a will: Both should be done when you are of sound mind and body – and before it’s too late!

The goal is to lay down measurable, finite limits before things get crazy. Unlike the old phrase, “He who runs away lives to fight another day,” this is not about cowardice, this is about courage to assure your personal financial survival just in case you are one of the “other 4.”

Five Simple Steps

Even if you are already in business, here are five simple must-take steps to help ensure that even if you “lose the store” that you won’t also lose your house.

1. Make a business plan. There are not enough words to stress this. It is astounding how many small and medium-size businesses don’t have business plans. A little secret is that a good business plan is not measured in inches; a three-page, thoughtfully-considered, hand written plan can be worth a million times its weight in gold.

2. Plan your limits. Business plans are inherently optimistic – that is, after all why you are doing this right? – but you need to include a section titled, “When to quit.” Keep the limits simple, measurable, and absolute. Most importantly, make them realistic so life can go on after business.

Some examples might be: “If I can’t pay my own salary in six months”; “If I incur $25,000 in debt”; or, “If my order backlog falls below 30 days.” Simple, measurable, absolute.

3. Find a “limit judge.” Your limit judge shouldn’t be your partner in the business, but can be a spouse or significant other, parent, sibling, friend, or mentor – any trusted associate to whom you will give complete authority to judge if you have reached your limits. It is always when we get near our limits that we may want to push them just a little – and then just a little more – until it’s too late.

Your limit judge can also be a coach who can help you with alternate strategies, but if the time comes to quit, he or she will make that call. Choose this person carefully, and be open regarding all important business matters. Seek his or her advice, and be willing to change your plans if things start going astray, or to quit if your limits are reached. You will naturally want to question the call, so be sure you trust and respect the judgment of the person you select.

4. Recognize the difference between “business” and “business opportunity.” In other words, know the difference between a bird in the hand and a bird in the bush. Be extremely careful of this trap. More than one storefront bakery has failed even though there were a lot of cars driving by, and more one marketing company has gone south even though the national volume of print ads was on the rise.

Seek guidance from your limit judge to distinguish the difference between these two birds that so often look alike. It is hardest to walk away from a businesses that has lots of promising prospects, even when there is no money left in the bank.

5. Stick to your limits – if it is time to quit, QUIT! When things get tough, don’t go to your limit judge with the intention of negotiating. Go to hear if, in his or her sole judgment, quitting day has come. If it has, shrug your shoulders and remember once more those staid words of advice, “He who runs away lives to fight another day.”