This is part of a series of posts in which - for what they are worth - I dispense with the knowledge and wisdom I acquired in a decade of slugging it out in the trenches as a small business owner.
While I enjoyed a number of financially-rewarding years as a business owner, I also experienced the unenviable trauma of having to fold a business I built up over a decade. In addition, I made a number of critical mistakes during the downward spiral my business took that - in hindsight - might have doomed me.
It is with this caveat that I offer some advice intended to help struggling small business owners understand their situations and - more importantly - their options. Feel free to with in with any of your own experiences or advice.
1. Know what your absolute limit for losses is. In one sense, owning a small business is just as much of a gamble as rolling dice on a craps table or playing poker. While you are probably an expert in your own niche, there are all sorts of unforeseen calamities that can turn a profitable business into a losing one. When you reach your limit of red ink, you must be willing to get out of the business, even if this means you will lose a ton of invested money. Otherwise, you are no better than an addicted gambler who runs up credit cards and cashes in life insurance policies to feed his addiction.
2. Never, ever, ever use withholding taxes as a short-term loan. Ever. I personally made this mistake when a new competitor came to town and my sales nosedived for a few weeks, and I convinced myself that things would shortly return to normal. Instead, this additional competition simply cut the market share of the existing competitors, and sales were slow to rebound. By delaying the payment of withholding taxes, I simply added the IRS to my list of creditors, and the feds charge the kind of interest rates that would embarrass a Mob loan shark. Moreover, as the company president, I was subject to the Trust Fund Recovery penalty, and it took me seven years after the end of my business to pay off the IRS. No matter how tempting it might be to "borrow" such tax monies to ease a cash flow crunch, don't go there.
3. Reduce inventories to an absolute bare minimum. In my old business I had unit managers who placed weekly supply orders. While I had some reliable folks working for me, it was nothing for these individuals to order quite a few extra few cases of expensive supplies. When I anticipated cyclical cash flow problems, I found that micro-managing inventory could free up many thousands of dollars that belonged in the bank.
4. Make the tough decisions on personnel. I always struggled with being the sort of owner who could make payroll cuts, especially with employees of long standing. However, in retrospect my loyalty to my high-priced senior employees contributed to my business not being able to withstand competitive challenges and unexpected commodity spikes in certain supplies. When I finally threw in the proverbial towel, such unwillingness to make needed payroll cuts brought me nothing beyond the gratitude of these ex-employees, and that ended the day I was no longer the owner.
5. Keep open your exit strategies. Never get so wrapped up in a business that you are not in a position to be successful after the business fails. In my case, I left with almost no cash, few prospects for similar work, and with the tag of "entrepreneur," which is the kiss of death in the corporate world (ex-business owners are seen as too independent and too resistant to authority). Swallow your pride and quietly put the word out to trusted contacts that you might be looking for a "real" job soon, and never spend your last nickel on a dying business. While I am not advising business owners to loot the corporate bank account on the way out, be sure to have access to a few months' worth of cash until you get some kind of work.
6. Remember - it's just a f**king business. A large part of my identity was once intertwined with my business, and after I got out, I no longer knew who I really was. You can always start another business, should you be a glutton for 80-hour workweeks, or you can use the end of the business as an opportunity to find a more fulfilling career. I found writing and academia to be a million times more satisfying than I ever did as a business owner, and - while I felt lousy and almost suicidal in 1999 when I started over - having my business fail was one of the best things that ever happened to me.