top of page
  • Admin

When to let go of a business that is not doing well

Did you know that in the second quarter of 2021, liquidations in South Africa increased by 46.2% compared to the second quarter of 2020.

A lot of those liquidations can be linked to the coronavirus pandemic that hit the world at large and affected businesses due to the hard lockdowns implemented in different countries.

However, how about also linking it to business owners who ignored signs of a business not doing well enough to face such challenges that may occur?

Sometimes, businesses open in areas where they cannot reach their target market, while at times, the need for that product or service is rather low. This leads to little or no business at all.

So, when does an owner or when do owners know when it is time to let go of a business? What are the signs that should be looked for?

As per usual, I Am An Entrepreneur will always give you solutions when bringing up a problem. We spoke to Managing Director at Bigen Global Limited, Dr McLean Sibanda, who gives us answers to the question at hand.

What are some of the signs one should watch out for when business is not doing so well?

• Cash flow is critical – “they have no ability to pay commitments as they become due, and especially if they have staff, it is important that there is sufficient cash to pay salaries,” says Dr Sibanda. • Poor revenue pipeline • Costs rising faster than revenue growth • Customers cancelling orders/contracts • Anything that relates to employees or critical resources, “anything critical to revenue generation and customer engagement or business development that leaves the business,” says Dr Sibanda.

Now that you know what signs to look out for when the business is not doing well, Dr Sibanda tells us what steps one should follow when letting go of a business that isn’t doing well.

• If you have staff, consult on the state of the business, get inputs from the staff on any turnaround. Offer them incentives for the strategies that help pull the company through. “No surprises, employees must know the depth of the problem,” adds Dr Sibanda. • Evaluate all commitments and contracts in respect of early termination and start to engage with the other parties for early release from contracts. “This also includes SARS, rent, leases, vehicle finance, etc,” says Dr Sibanda. • Commitments include contracts where you are potentially going to be earning revenues. “It is important to communicate with clients but ideally factor in how the work can be completed without leaving the client worse off,” adds Dr Sibanda. • Consult a lawyer about steps to take to wind down a business. You will need to do final audits, for tax and other purposes, and eventually close bank accounts (once you have been able to settle with employees in terms of Labour Relations Act, where turnaround did not work and you follow proper retrenchment processes) • It is important that there are no loose ends and people chasing you for payment of the debts of the business

“Remember relationships are everything and it’s important that the failure of this business is not your failure and results in a bad reputation in the market place,” says Dr Sibanda.

When and how can one save a business that is dying?

• Some businesses cannot be saved because they might have run their full course or the demand has run out • At first signs of cash flow challenges, look at cutting unnecessary costs. “In my view employees should be the last costs that you cut. If you start retrenchments too early, you demoralize those that are left and the low morale will kill your business,” says Dr Sibanda. • Do a business model canvas (BMC) to determine if your value proposition is still relevant and your customer segments growing. “Often this may help you to pivot the business and realise untapped market potential or opportunities,” adds Dr Sibanda. • Explore partnerships, including some consulting services that may help bring in revenues whilst you work on the business.

There you have it, it is important to pay attention to even the smallest of factors that may contribute to business not doing so well. What is more important is to know when to let go so you do not get into unnecessary debt.

18 views0 comments


bottom of page