How To Avoid Trouble When Your Business Goes Under
When your business goes under, it can be really tough to get back on track. You might feel that you're stuck in an endless cycle of missed opportunities, debt, and anguish. If you run a small business, chances are you have much less cushion than the big guys and so even small setbacks can be more difficult to recover from.
It's not easy having a startup or any type of business fall flat on their face but sometimes things just don't work out the way we expect them to. The economy, competition, bad publicity, and several other factors may put you at a disadvantage. You always have to be aware of the possibility that your business won't succeed and should take active steps to protect yourself before things get out of hand.
Here are some tips for walking away from your failed business with your head held high:
Avoiding Selling Yourself Short
"The best way to make a small fortune in the stock market is to start with a large one." – Mark Twain
Nobody wants to give away their hard-earned cash for free. Make sure that you're truly ready to relinquish control over your business and make sure that you're getting something in return. It takes a lot of effort to build a business, so don't sell yourself short just because you're in a hurry to get out.
If you sell your business for less than it's worth, you'll have little chance of recovering those losses later on. The buyer will likely make big changes to the company and you might not be able to benefit from its success in the long run. You should also resist the urge to take out loans and debt just because you need money quickly. This can hurt your chances of getting back on your feet if things don't work out with that new business owner.
Avoiding Debt And Taxes
Debt and taxes can be an unbearable weight for small businesses that are going under. This can be especially true if it's your first rodeo and you're not sure how to handle the situation.
If you're struggling with debt and taxes, try renegotiating your loans with the bank before you give up. Keep the lines of communication open so that they know how bad things are getting for your business. This may hold off any foreclosure or repossession procedures, giving you more time to figure out your next move.
Taxes are also unavoidable and should be dealt with as soon as possible. If you're going under, one of the worst mistakes would be to ignore any tax matter that comes up. You want to avoid penalties at all costs because every dollar counts when things aren't going well financially.
A Final Note Of Encouragement
It may take some time to bounce back from your failure and recover financially but it's certainly possible. Don't let the loss of a business come between you and your loved ones, as they can be a big source of help and comfort during this difficult time. And there's no reason to give up on business altogether if you've had a bad run – just dust yourself off, figure out what went wrong, and try again. With that in mind, we wish you the best of luck!
Source: http://articles.wismarket.com/Articles/How-To-Avoid-Trouble-When-Your-Business-Goes-Under.aspx
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Stanford University School of Business – Failure and Success: Lessons from an Entrepreneur Who Founded Two Companies, One Successful, One Not.
By Steve Blank, Paul B. Brown – 2004-02-05
"If you can't enjoy being a startup, don't start one." —Geoffrey Moore.
You can't make big mistakes if you don't take risks. Period. As an entrepreneur, you are setting out to do something that has never been done before. There is no textbook, no marketing plan and no business plan that will give you the blueprint for success. And coming up with a good idea is easy; there are plenty of those. Completing it and doing it profitably are another matter.
I have started two companies, one successful and one not. At my last company, E.piphany (EPAM), we raised $82 million in venture capital, grew to over 700 people and sold to Oracle for $485 million in 2005. This month I joined Greylock Partners, the VC firm run by the founders of Compaq, Yahoo and LinkedIn. In this article, I'll describe the mistakes that led to my successful exit from E.piphany and explain how these lessons will affect my current company, Altos Research.
The Revenue Question
If you don't know the answer to the question: "How much revenue are we going to have next month?", then you shouldn't start a startup. Period. No startup should be started by someone who has no idea if there is going to be a customer for what they are doing or not. There is really no excuse today for starting a company based solely on technology.
Why? Because the very idea of a new service or product is based on the underlying assumption that if it is done well enough, the customers will pay or use it. A lot of technology companies started by people with technical backgrounds and little business experience were built with this in mind. The problem is that you can never be 100% sure to getting a proper return on investment from your technology-based startup until you have revenue coming in. If there is no revenue, then you still need to build revenues into your business plan. The same goes for new products and services for established businesses: there must be a customer base ready to pay for what they are being offered, before investments will get paid back.
The Discovery Question
"Discovery consists of seeing what everybody has seen and thinking what nobody has thought." —Albert Szent-Gyorgyi.
The goal of a startup is to discover a repeatable and scalable business model. Until you know that there is a repeatable business or product, you shouldn't start the company. This does not mean that it will be easy to know that you have proven the business model, but nor should it be impossible either. When people are investing in your company you need to have clear evidence (even if it's anecdotal) of how customers will buy, use and share your product or service once they get their hands on it.
You also need to have a good idea of how to build a repeatable business. I have seen a lot of companies start off with some cool ideas for products or services, but when it came time to figure out how to scale and make them profitable, they were unable to. And even if you can succeed in doing that, it hasn't necessarily been worth the cost of the company.
What is the Cost of Failure?
I believe that we are at a point in time where people are more willing to admit failure than they are earlier on in my career as an entrepreneur. We know more about the effects on mental health and well-being of failure than ever before too.
Conclusion
I spent the last few years of my venture career helping startups and entrepreneurs understand what they should be doing to validate ideas and strategies. Now that I have a revenue-generating company, I am acutely aware of how little value there is in having money invested in a company that will not generate any revenue.
Even though I now work with companies on the investment side, I'm still very interested in what happens when businesses stop, start or fail. It is because of this perspective that I am building Altos Research, the first business research and advisory firm focused on emerging technology companies.