When Do You Know It’s Time To Shut Down Your Unprofitable Business?

For many businesses in Singapore, 2020 is likely to be one of the most challenging years that we have to face. The COVID-19 outbreak has slowed down many sectors and made it hard for business to operate normally, given the need to comply with safe distancing measures and circuit breaker restrictions.

This month, it was reported that a total of 8,663 business entities in Singapore have closed in April 2020, which is more than double the number of businesses that closed in March. Moving forward, it’s not hard to envision that this number will continue to remain high in subsequent months as many companies will struggle to recover. 

Besides managing the COVID-19 outbreak, another priority for the government is to keep as many workers employed as possible. If unemployment increases, a spillover effect on spending in the economy will be created, which will worsen the recession we are already facing. 

To do so, the government has introduced a slew of measures such as the Job Support Scheme and the Wage Credit Schemes. These schemes, among many others, are aimed to help businesses in Singapore survive this pandemic. 

While all businesses are entitled to receive these grants, there are other schemes such as the Enterprise Financing Scheme, which allows businesses to borrow at a low cost during this period. 

However, an important question for business owners to consider is whether it makes financial sense to continue operations with the support of these schemes, or whether they are better off exiting their business during this period.

Did An Already Bad Situation Get Worse Because Of COVID-19?

There is no doubt that the pandemic has affected many businesses in Singapore. Even companies such as DollarsAndSense, which is purely a digital media publisher, have to make adjustments in the way we operate. Since mid-February 2020, our employees have been mostly working from home. While our revenue has not been affected (yet), the slowdown is starting to be apparent with some partners slowing down their advertising spend.

While government grants and loan schemes can be useful during this challenging period, business owners shouldn’t merely tap on these grants and loans just because they can.

You see, these grants and loans are going to be very timely for businesses, which if not for COVID-19, would be sustainable and continue to thrive. For these companies, the government support could mean the difference between survival and extinction. As an owner of such a company, you should do your best to overcome this challenging period. 

However, there are also companies that were already in a bad shape before COVID-19, which now find their business situation being worsen by the pandemic.  

For example, JCPenney, which used to be one of the biggest retailers in the United States, recently announced that it would be filing for bankruptcy. The company had already been struggling for years as it competes with bigger and more technologically advanced companies such as Amazon. 

One could say that the pandemic merely quickens what would have been an inevitable outcome for the company. For JCPenney, choosing to wave the white flag during this period is likely the right decision. 

Look At Your Company’s Growth & Profitability Before The Pandemic

Because every company is affected, some worse off than others, merely looking at your current financial situation – while necessary, isn’t enough. 

Instead, look at your company’s growth and profitability, or lack of, before the pandemic.

If you were a sustainable start-up that was making great strides before the pandemic and is now seeing your growth tapering off, it’s okay to hang in there. The entrepreneurship journey is never a bed of roses, and as a business owner, you need to see through both the good and bad times, not just the good. 

However, if your start-up was already struggling with gaining user traction and burning through cash to grow, and your growth has now started declining because of the pandemic, then it’s worth reviewing the prospect of your company. While giving up should never be the first option, there is nothing wrong with being brutally honest with yourselves and your stakeholders on your chances of future success.

Read Also: Why Cash In Bank (And Not Profit) Is The Number One Priority That Business Owners Need To Care About

Similarly, if you have been running an established and profitable business for years and are now seeing losses for the first time, you should not throw in the towel quickly because you are making losses in the next few months. 

While the business environment may be challenging, you and your staff can remain hopeful that your business could pick up quickly when things revert to normal.

However, if your business was already making losses for years and are now in a dire situation because of COVID-19, you should seriously consider a closure since it’s unlikely things may improve for your business, even after COVID-19 has passed.

Have Ambition, But Be Realistic

As a business owner, we need to not only have big dreams, but also to be realistic. 

Being realistic means understanding the business environment we are operating in and what is required for success.

If COVID-19 changed the business environment that you are facing such that it’s going to be hard to recover, there is no shame in cutting your losses and to fold your hand, rather than to continue pouring in money to a venture that is unlikely to give you the outcome you want.

Read Also: COVID-19: F&B Operators Are Badly Hit. Here’s What It’s Really Like For A Well-Loved Local Brand

Need Financing Support During This Period?

From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.

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