You had a great idea. You went through lots of research and work to make it a reality. You got it started or opened. Now you are tired.
You forgot that the real work starts after the business is started. You don’t have enough customers. You don’t have enough money for marketing. You hate book keeping. Or maybe you realized that the opportunity isn’t large enough to create a reward for you big enough to justify all of the risk you have taken on. Now what?!
We have to ask three questions: should you get out, and if yes, when should you get out and how should you get out of your business?
Should You Get Out? In general, if you believe an investment isn’t going to make a good return for you, there is little reason to keep it. But many people do just that for emotional reasons once they are already invested. You need to figure out how much you can make elsewhere (like from a salaried job) plus any additional money you would need to put into the business to keep it afloat and compare that to what you may lose walking away from your investment in the business. Think of it like a stock that is decreasing in value. Some people keep throwing money into a sinking stock because they are already invested in it and can’t bear the thought of losing money in the stock, not realizing that if they sold the loser stock and invested in a stock with strong prospects, overall they would be better off and make more money. You need to evaluate your business as part of your earnings and investment portfolio and make an informed decision based on your situation.
When Should You Get Out? You should get out when any additional time, money and effort you would put into the business will not realize a worthwhile return. If putting an additional $25,000 and 6 months of effort will create something that is worth $50,000 more in 6 months, then wait. If that same money and time will create something only worth $10,000 more, then get out before you make that investment. You also have to consider any repercussions (such as leases, financial or other guarantees that may cost you money) in your risk-reward tradeoff evaluation.
How Should You Get Out? If you have anything to sell and you can do it in a timely manner and recoup enough money to make the opportunity cost of keeping the business open worthwhile during that time frame, then do so. This can be your whole business if you have created any equity in it or this can be assets. Just make sure the tradeoff makes sense. I had a client that had a business that was generating lots of sales but losing money. He had a hard time shutting it down because he was focused on the sales, even though it was costing him more money to keep the business open than those sales generated. If you are in a situation like that, just walk away. Yes, you may be able to recoup a few dollars, but if you could be making more than those few dollars doing something else, go for the higher payoff!
No situation is irreversible; while it is better to avoid putting yourself into a situation where the risks don’t justify the reward, remember to keep the big picture in mind.