Knowing when
to say when

Some businesses won't make it.
These signs may mean it's time to fold

by Rob Perez
Star-Bulletin

It can be the toughest decision a business owner will ever make. And a very personal one.

Yet owners often wait too long to make the call, experts say. By the time they decide to close or sell a struggling business, a lot of their equity or customer base can be depleted.

As Hawaii's economy has sputtered for most of this decade, it has claimed many small businesses. Many more are close to failing.

The problem, some experts say, is that owners of faltering businesses typically are reluctant to admit failure and throw in the towel -- even when all the signs suggest that is the most prudent action to take.

"It's very tough, when you've invested so much in the business, to cut your losses and run," said Jane Sawyer, assistant district director for business development with the Small Business Administration in Hawaii. "If you put your heart and soul into something, to put all that on the table and say this isn't working, is difficult."

Most new businesses, of course, don't make money until they attract a sufficient customer base. That can take months, even years, depending on the business.

But experts say an owner's business plan should specify how long that red-ink period is expected to last and how the operation will be funded until then.

If an owner has to substantially deviate from that plan, he needs to rethink the overall marketing strategy and make necessary changes.

If problems persist, the business may not be viable, business counselors say.

While there are no hard-and-fast rules about when an owner should bail out, here are some red flags for businesses beyond the start-up stage:

Expenses consistently exceed revenue.
Cash flow falls well short of projections for several consecutive months.
Credit cards are used to meet daily operating costs.
Payroll or loan payments are met only by dipping into funds not designated for that purpose in the business plan.
Revenue keeps falling, and efforts to reverse the decline don't work.

In today's economy, problems like those are not uncommon.

Unfortunately, many owners facing such problems lack the expertise to overcome them, counselors and consultants say, and probably shouldn't be in business in the first place.

"They're thinking that just having an idea and a dream is enough. It isn't," said James Hawkins, president of Directions Inc., a company that develops training programs for employers and organizations.

Once a business starts failing, the owner should have a realistic turnaround plan in place, clearly spelling out what changes are needed to right the business.

A lender will require such a plan. And the plan must have specifics, not just that the owner intends to work more hours.

"Businesses don't survive just by working harder and harder," said Darryl Mleynek, state director for the Small Business Development Center.

If an owner decides to sell or close the business, hiring professional help often is recommended.

"Selling a business, even a small business, can be more complicated than people think," said Ron Heller, a tax attorney and certified public accountant. "There's a whole bunch of issues that can come up that people may not think of on their own."

For those interested in trying to turn their businesses around, plenty of help -- free or for a modest fee -- is available through various government, college or assistance agencies.

Yet many owners fail to take advantage of such services.

"Small business owners frequently don't ask for help and think because it's their business, they have to invent everything themselves," Sawyer said.

"Sometimes it doesn't make you feel great to seek help," she added. "But the payoff could be great."