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

This article was first published on 26 May 2020 and has been updated with additional reporting.

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

As at August, 27,983 business entities have shut down. 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 and remain relevant. 

Read Also: COVID-19 Impact: 5 Reasons Many More Companies May Shut  Down In The Coming Months

Besides managing the COVID-19 pandemic, 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 SchemeEnhanced Training Support Package (ETSP),  the Wage Credit Schemes and others. These schemes are aimed to help businesses in Singapore survive this pandemic and position themselves for the digital future the global economy is accelerating towards. 

While all businesses are entitled to these grants, there are other schemes such as the Enterprise Financing Scheme, which allows businesses to borrow at a low cost during this period. You can tap on government-assisted business loans such as the SME Working Capital Loan, the Temporary Bridging Loan (TBL) and others.

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.

Read Also: Guide To Closing Down A Company In Singapore: Striking Off Company & Winding Up

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

There is no doubt that the pandemic has already affected many businesses in Singapore. Even companies such as DollarsAndSense, which is purely a digital media publisher, have had to make adjustments in the way we operate. Since mid-February 2020, our employees have been mostly working from home and we have been taking steps to streamline our internal account and HR & payroll  processes with digital solutions. You can tap on the Start Digital Pack by local telcos and banks such as OCBC, for account, HR & payroll, digital marketing  and cybersecurity.

While our revenue has not been affected (yet), the slowdown is starting to be apparent with some partners working with smaller marketing budgets. As more companies and the economy becomes affected, this may become magnified.

While government grants and loan schemes can be useful during this challenging period. For companies that would have been sustainable and continue to thrive if not for  COVID-19, these grants can be a lifeline. There are also companies that are growing slower due to COVID-19 – again, these grants offer a solution to speed up growth plans.

However, there are also companies that were already in a bad shape before COVID-19, which now find their business situation being worsened 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 has merely quickened 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 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 are 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 navigate both the good and bad times. 

Perhaps this is also a good  time to review your internal processes to see how you can improve productivity, remain relevant and reduce costs with digital solutions. You can leverage on digital tools ranging from HR and payroll to online loan applications to digital marketing consultancy and e-invoicing. 

However, if your start-up was already struggling to gain 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 at the first signs of distress because of 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 the economy turns.

However, if your business was already making losses for years and is 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

(Additional reporting by Dinesh Dayani)

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