Business Failure

September 28, 2008

Business Failure
By Mike DuBose

Business failure: entrepreneurs dread those terrible words. We should plan from the beginning to fail in order to succeed. We know this as SWOT analysis—regularly assessing strengths, weaknesses, opportunities, and threats when planning and running a business.

In 1985, I had to tell my shocked employees and family that our once-successful businesses were about to close. The following two years would become my worst nightmare, marked with depression, worry, and enormous struggles. That dark, terrible period eventually became a great gift from God because I learned the hard way how to properly run a business. Our current success is built on past failures that were caused by a combination of blind greed, arrogant thinking, dumb decisions, and being in the right place at the wrong time.

Company failure signals: Your business will emit signals including: minimal or no profits, poor cash flow, borrowing money frequently to pay bills, high staff turnover, diminishing customer base, declining sales, and unhappy customers. If you have the proper financial structures and budget tools in place, you will detect these problems early. Don’t put your head in the sand!

When to pull the plug? Timing the closing of a business is critical. Some owners prematurely close businesses that could have been saved. Others wait too long to close the doors, foolishly hoping things will turn around. Since my closings in 1985, my businesses have emitted danger signals three times over the last 20 years. I now know to go into quick but careful crisis management, which typically includes cutting nonessential expenses. You need to look after your employees, but also must put that tough owner’s hat on and make hard and painful decisions.

Solicit the right expert help: Many business owners cannot think clearly when their ship is going down. Solicit advice from accountants, lawyers, consultants, and business owner—then, LISTEN!

Keep your closing quiet: Be careful about alerting employees, vendors, creditors, or the public prematurely. Even your most loyal employees will desert when you need them the most and vendors or bankers will tighten credit.

Consider selling your business: Secure the services of a professional business broker to value and sell your business. Even with a loss, this may be a preferred route. Think about competitors who could buy your inventory and customer contracts.

Seek legal protection: When closing a business, carefully examine exposure like personal guarantees, lease agreements, and contracts. Make a list of your liabilities. You should pay all debts over time, but may need to temporarily fall behind the protection of your legal structure to buy time to regroup. Be prepared for an immediate attack from your creditors as they scramble for your assets. Pay off your liabilities where personal assets are exposed first. Secure competent bankruptcy attorneys and accountants to guide you in following the law, brainstorming payment plans and problems, or preparing for disaster. Bankruptcy laws have tightened because of the national credit crisis, so you need to know your rights.

Develop an asset sales plan: Make a list of assets and a plan to sell them. A gradual selloff is always better than a fire sale. Keep in mind that your assets will now be worth about 20% of their original cost and that your creditors may have liens on your assets.

Negotiate: Creditors may be willing to negotiate for a lesser amount and landlords might accept a lower payment on a lease. Bankers may renegotiate better loan payment terms with adequate collateral, but even the friendliest bankers grow horns on bad loans.

Maintain your mental and physical health: You need decent mental health to make good decisions. Exercise daily and avoid excessive alcohol consumption. If you find yourself exhibiting symptoms of depression like sleeping poorly or finding it difficult to get out of bed, see a physician or mental health professional for counseling. I went without help and that was another dumb mistake: my stress led to diabetes!

Stay focused: As I did when I began my businesses, I developed an orderly, structured plan. However, it was an exit plan rather than a business plan.
Failure happens to the best of us and can be a great teacher if we learn from it. When you fail, dust off your pants, learn from it, and start again on that rough road to success!

Mike DuBose is a graduate field instructor with USC and has been in business since 1981. He is the servant leader and owner of six corporations, including Columbia Conference Center, Research Associates, and The Evaluation Group. Mike is writing his book The Art of Building a Great Business to be released in 2008. You can visit for other useful articles and suggested readings.