Whether your impetus is financial or emotional, there may come a time when the right move is to shut down the company you founded and nurtured. Ignoring the signs can be self-defeating.
A wealth of resources is available to help you start a business, but there are very few to guide you on how and when to end one. The decision to close your dance store, studio or company can be a difficult and lonely one, but making the choice at the right time is critical.
Winding down your business quickly and efficiently can make the difference between surviving to come back with a new venture or destroying your personal wealth, credit, and possibly, relationships with friends and family. Don Todrin, the founder (now retired) of Second Wind Consultants, a company that helps struggling businesses warns, “The last thing you want is to bleed to death slowly. You don’t have to go down with the ship. Find another ship.”
The Decision Point
The decision to terminate a business has two basic components: How you feel and what’s happening to your pro forma cash flow (i.e., your projected revenue and expenses for the next three to six months). Todrin notes that when the two are moving in opposite directions—that is, your determination to stay in business is growing while your future income is shrinking—you are in a danger zone because you’re disregarding financial reality. “Emotional decisions kill you,” he says. “You start doing stupid things, like not paying taxes and eroding your personal assets.”
Although Todrin is a turnaround specialist, he says “my highest responsibility is to tell business owners when there’s no hope.” However, he urges business owners who are hitting a wall to make the following adjustments as quickly as possible if they are determined to keep operating:
- Renegotiate your lease terms
- Cut payroll
- Notify your vendors you can’t pay them right now (but consider a small payment to your primary vendor)
- Renegotiate bank debt, if you have it
- Reserve at least a small amount of cash for sales and marketing efforts
“If you can’t do that, exit immediately,” Todrin advises. He also cautions against financial stopgaps like merchant cash advances (essentially a usurious payday loan for businesses) or borrowing from friends and family. “Shut your doors before you take those loans,” he says.
One Loss Saves Three
Without knowing Todrin, Judy Purcell essentially took a page from his playbook. Purcell has owned Chicago area dance stores for 39 years, but the past pandemic year required her to sacrifice one of her four Dance ’N Tees locations to keep the other three in business. Purcell was in good company with her strategy: In 2020, retailer H&M announced plans to close over 400 of its more than 5,000 stores in 2020 and 2021, while fast-fashion competitor Zara’s owner Inditex said it would ultimately close up to 1,200 of its 6,800-plus stores. Chico’s, Gap and Victoria’s Secret acted similarly.
“At first, it was emotionally difficult,” Purcell concedes, “but that store [in Libertyville] wasn’t generating enough revenue even before COVID hit. The handwriting was on the wall. It was close one or lose them all. I wasn’t going to let COVID put me under.”
She had already renegotiated her lease to month-to-month terms with a 90-day notice. So in April 2020, she let the landlord know that she was shutting down and closed the store in June.
Purcell, whose two daughters also work at Dance ’N Tees, then did what most business owners dread most: She cut her staff from 23 employees to 13. She also cut costs by taking four hours out of each retail day, as well as going from seven business days a week to six at one of her locations.
The inventory from the closed store proved to be a boon in that it allowed Dance’N Tees to have additional stock without placing new orders. Normally, Purcell’s team sells at 30 to 35 dance conventions a year, but in the past year did only three, and so she cut her new merchandise orders substantially.
Looking down the road, Purcell says, “We’re hoping for a big back-to-school period, but who knows.”
You’re Not a Quitter!
Like Todrin, Barbara Weltman, president of Big Ideas for Small Business Inc., emphasizes the importance of thinking about your business and its future rationally. “It’s tough because you have financial considerations and personal considerations,” she acknowledges. “How do you feel when you get up in the morning: Is it becoming a feeling of dread? That might be a tip-off that it’s time to get out.”
Lucy Bowen McCauley’s decision to shut down her eponymous dance company on its silver anniversary was based on a feeling, but not of dread. The founding artistic director says, “I started thinking a few years back that maybe I didn’t want to do this forever. I kind of surprised myself; I’ve been a dancer all my life, and it’s my passion.” But the more she thought about it, the more she realized she wanted to make time for other things, like focusing more on the Dance for PD [Parkinson’s disease] classes she’s been teaching in the Washington, DC, metro area, instructing private clients, and choreographing for other companies.
Bowen McCauley’s shutdown plan for Bowen McCauley Dance Company offered plenty of notice to her dancers, technicians and staff, so most were able to move on to other opportunities. She’s hopeful the Library of Congress will take her archive of original choreography and other important materials. All other financial and HR-related documents have been shredded. The company’s final performance was September 14, and October 31 will be the last day of business, as the organization shuts down accounts and files final tax statements. Of her decision to leave the “all-consuming” world of running a company, she says, “I think it’s healthy for me. I’m not going out to pasture.”
If you’re at a similar crossroad either emotionally or financially, Weltman suggests: “Sit down with your financial advisor and set some kind of deadline. You have to look at where you are. And if there’s nothing that can be changed or you don’t want to make those changes, it’s time.” Pushing back at the never-say-die stereotype of the American entrepreneur, Weltman adds: “It’s not un-American to stop.”
A Good Ending
The bottom line: Always be attentive to and guided by your company’s financial projections as you consider its future. Most small businesses aren’t on top of their cash flow, according to Todrin, which makes a smart decision about continuing operations difficult and thus likely rife with emotion. “All too often I see small businesses that neglected the brass tacks, especially setting up the cash flow pro forma.”
Purcell’s daily accounting of each store’s sales did make the decision to close her underperforming store simpler and less harrowing: “The decision was made for me,” she says. As far as advice to other dance retailers in a similar situation, Purcell echoes Todrin’s guidance. “Keep good records. And know where your money is going.”
Anne M. Russell is a Los Angeles–based writer who covers small business, fitness and technology.