When to close the company? If the business is making losses, it is necessary to evaluate whether it is worth continuing or better to stop.

When companies find themselves in a very difficult financial situation, entrepreneurs may wonder if they can still cope with the problems, or if it is best to close their own business. And this is not necessarily a sign of incompetence, as difficulties may arise from external factors or flaws in the business model.

If, even in the most unfavorable conditions, businessmen decide to continue operations, in the future they may have difficulties in settling all debts with suppliers and employees, as well as incurring personal debts to try to save the company.

There is no specific moment that determines when to close a company, but analyzing the origin of the problem can help determine whether alternatives should be considered, or whether the situation is unsustainable.

Entrepreneurs should know how to assess whether it is time to close their company before the crisis worsens. photo: chunky – stock.adobe.com

Some signs of risk to the company

To understand this situation, it is first necessary to understand that the financial difficulties of companies are often not obvious. Despite this, there are signs that glow yellow.

Some of them may be:

  • difficulties with paying employees the 13th salary;
  • maintaining lines of credit to advance accounts receivable;
  • difficulty paying suppliers.

These difficulties are not necessarily a sign of poor financial management of the company.

“Even with good business management, a company may find itself in a difficult situation due to external factors,” says business consultant Vitor Moura, partner of WIV Gestão Financeira, a consulting company specializing in small and medium-sized enterprises.

Possible problems in managing finances

In general, difficulties with business model profitability are easier to adjust than corrective movements in financial management.

“When a company has a profit problem, it quickly realizes it,” says Moura.

He explains that these companies go to the market in search of loans, but realize that the movement is inefficient and therefore have to adapt by changing the model they use.

If the financial management of the company is the cause of difficulties, other points. The main ones are:

  • inventory management failures;
  • payment terms to customers and suppliers;
  • errors in the default control.

If these points are identified, you can try to get out of the situation depending on the company’s debt.

“We have to divide what needs to be paid in the short term and try to come to an agreement. Debts that are unenforceable, we think about dealing with the law,” says Moura.

Separating the mind from the emotions is fundamental

The main difficulty, according to Moore, is identifying the company’s difficulties and trying to separate reason from emotion. Understanding the financial situation and the signs that things are not going well is important for an entrepreneur to avoid “doubling down” and bringing the company to bankruptcy.

“Sometimes an entrepreneur makes a bet more because of their passion for the company than because of their business vision,” says Moura. “Some motivational coaches repeat the speech that says you have to break x number of companies before to be successful,” he adds.

It also points to the difficulty some small business owners face in considering employment alternatives, given that many have no formal education, training or any other work experience other than entrepreneurial.

Moura also warns of the risk of trying to overcome a company’s problems with personal resources, which could force an entrepreneur to get rid of important assets such as cars and real estate.

“Sometimes, in order to save the company, an entrepreneur begins to get rid of everything he built during his life,” he says.

According to him, the use of these resources should take place only with careful monitoring, in which the possibility of repaying the company’s debts and creating a restructuring plan is revealed.

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