Does anyone know when to pull the plug on a business which is running as a going concern but not making a decent profit? The answer is complex, but in very general terms one should be brave enough to do it as soon as it is possible and feasible.
It is interesting to know that a very considerable number of start-up business fail. Some experts believe that the correct figure based on a percentage may be well over 80%. But the good side of this is that a very large percentage of failures lead to success in the future. A true entrepreneur, much as a top-class sportsman or musician, tries again and again until he finally makes it. Not all achieve success; some do and some do not as in everything else in life. Certainly, the harder you try the luckier you get. But there is a limit in effort and time with plays a crucial part in all this. One can simply not continue to put the hours, sacrifices and the endless funding into a company that will not fly. One really must pull the plug and do something else. All entrepreneurs do it at some stage. Yes, it is painful, and it can be sad but a well-timed close-down can be worth gold in the future.
A well-timed close-down can be worth gold in the future.
An entrepreneur I once knew came from Northern Italy and started a restaurant along the Andalusian coast. It was a success from day one. He opened a second outlet and then a third. More outlets followed suit. Over the years, having established a clever formula in the hospitality business, he moved from strength to strength and he put together a medium size chain of restaurants. The food was very good. Fair value for money. Everyone liked going there, and to be seen there. But nothing lasts forever. And like it often happens, his food started being a little out of fashion. But before that he had a very substantial purchase offer from a large hospitality group from France. He was offered double figures in millions, but he would not hear about it. His ego was too strong, and besides his business was booming at the time.
In my view that vast figure should have been taken and he would have secured a very comfortable early retirement with all his money available. But instead of that he continued expanding; his management made some mistakes and he persisted in pouring more funds into the business. And when he could no longer rely on his own personal funding he resorted to loans which banks were happy to supply as his collateral was good and his cash flow very impressive.
In business you simply cannot be a romantic.
One large outlet had to be shut down. And then another followed suit. And some were sold off. The sales brought in some much needed capital but it simply was not enough. It barely covered capital debt and interest. It was what has been described as throwing good money after bad. It simply never works – he really should have pulled the plug much earlier on. The ideal strategy would have been to sell off to the large group from Aquitaine, cashing his chips early on, much like surfing a wave at the right moment. But he made a very common mistake, which was falling in love with your business. And in business you simply cannot be a romantic.
In property development the same rule applies. Sell on or move out if the project does not take off. It is simply not worth it to continue with the effort and to keep on pouring money into a non existing profitable future.
A sharp property developer from South London always used to say that several golden rules applied in his business:
Never fall in love with your buildings and sell off as soon as you can.
Pull the plug if you need to and make a fresh start somewhere else.
Never keep on investing money, because all you will get is a much worst financial scenario in the short term future.
It is always better to be sad than sorry.
In business one must be brave to pull out the plug when the time comes. If you see the symptoms, and these are always quite clear, just plan your escape route and execute it. Do not think for a second that things will probably change because most likely they will not. In today’s business world things move very fast; In the old days it was quite usual to assume that it took five years to establish a new venture or start-up. These days that figure is totally out of date. It is probably half the time now and that is being conservative.
A well planned escape route including pulling the plug at the right time can be the start of a much better project in the future. In business if you are consistent, and know when to pull the plug you normally arrive.