Knowing when to give up in business: should you push through or quit?

Sometimes, times are hard. You're working at something. Working, working, working. And still you see little or no result. Should you give up or should you push through?

Sometimes, times are hard. You're working at something. Working, working, working. And still you see little or no result.

Should you give up or should you push through? How do you know whether you're in a dead end or you're at the darkest hour - the one just before the dawn?


"I'm not making any profit - should I just give up now?"


A few years ago I was presenting a session about business finance for Galway Executive Skillnet. I explained the ins and outs of profit vs. revenue, key performance indicators, cashflow, etc.

In the Q&A session at the end, one entrepreneur stood up and asked "How do you know the difference between failure and keeping going? Really I'm not making any profit - should I just give up now?" He looked me square in the face. You could feel that this was a loaded question and he wanted some guidance - he was at the end of his rope.


The emotional weight of the decision


If you listen to the Savvy Podcast with Deirdre McGlone, she talks about the time their accountant told them they were running Harvey's Point with their hearts, and not their heads. This is very common in entrepreneurs and small business owners: our business is a bit like our baby, we created it, we nurtured it from humble beginnings, we stayed up late and got up early, we saw it through the growing pains and took its defence in tough times.

Give up try again

The weight of emotional attachment is enormous. Asking us to give up on our baby - that's just impossible. We can't bring ourselves to do that, even though in certain cases this is the rational, logical choice. And still, if we want to keep our sanity - and sometimes a roof over our heads - something has to change.

But how do we know the situation is truly hopeless, how do we know better days are not just around the corner? Sometimes it's the uncertainty that's the most difficult. If we knew for sure the enterprise was doomed, it would be easier to let go. If we knew for sure things would get better after a while, it would be easier to forge on.

My answer to his question was another question:

If this continues into the long term, how would you feel then?


I said "If you were to continue as you are now, how would things be in the long term?" He described the situation at that moment: there was this bill, and that bill, and then that other bill. No profit in sight in the short term.

If you're facing the same scenario, the answer comes down to whether the situation is temporary or permanent. Right now, your business is making a loss: is that going to last, or do you see your way out of it?

There is often a timelag between the moment we start investing time and energy into an enterprise, and the moment we see the fruits of our efforts. This is especially true if we are developing a product and we have to produce it and distribute it before we can make money from it.

A temporary loss comes from temporary expenses: marketing costs to get your business off the ground (a website, graphic design, etc.), free samples and trials to get your first customers, branding investments... You need an initial push to get started.

A permanent loss is when the costs aren't likely to fall and the revenue isn't rising significantly or fast enough. That's when the emotional connection you have to your business can turn from a positive ("my business is my baby") to a negative - to the albatross around your neck, eroding your physical and mental health.


Is your price right?


Businesses often close not because they don't have enough customers, but because they're not charging enough.

I have so, so often come across business people telling me that their clients don't pay them enough. I know the feeling. I have felt like that too on a number of occasions, when I wasn't brave enough to ask for what I thought my services were actually worth; when I was afraid I wouldn't get the job; when I would charge a certain amount for a day's work, and then put in far more than a day.

I also needed to understand that a situation in which you make a loss doesn't reverse and improve on its own: the more loss-making work you take on, the more money you're going to lose, even though you're working all hours. Revenue might have been coming in, but it was hoovering up more resources than it was worth by the time it got to the bottom line. "Working harder" isn't the solution here.

However, when I thought about who was responsible for that situation, I could only look in the mirror: I had set the price. I could take steps to do something about it or resent the customers that I had worked to get in the first place!

That's exactly the kind of situation when you need to take a step back and work "on" the business, and not just "in" it. Working harder will get you more of the same - more of making a loss, and you don't want that.


So what can I do about it, then?


From here on, though, you are far from powerless: you have several solutions and opportunities.

If you're convinced that there really isn't a market for your products and services, if there aren't enough people who will pay you the amount of money that you need in order to make a profitable business, or if the costs are unsustainably high, then it may be healthy and prudent to wind down this part, or all of the business.

Before you make a final decision, talk to a business broker about this. Perhaps you have assets that are saleable; the business itself may be profitable if it was bought by a larger company with economies of scale; your database may be highly valuable to another startup; your domain name may be of interest to a unknown onlooker, etc. You may well be in a position to get paid for what you've built up despite it being discontinued.

You would think this is painfully obvious, but you would be surprised how many business owners have no idea where their breakeven point is. Your profit is money above and over the breakeven point. If you don't know how much money you need just to run your business, then you cannot know and predict if and when you will be profitable.

Your mission now is to enlist the help of a spreadsheet and be extremely honest with it. So how do you know you're making a profit? There are four key elements to this exercise and you need to be very objective in your assessment.


What profit actually is


Part 1: variable expenses

After you pay for the direct inputs to your product or service, how much money is left?

Over a decade ago when I first started out, I offered stock market mentoring to people who wanted to invest their own money in the markets. I would drive out to mentor people in person. I was selling my mentoring for €60 and let's say it cost me €10 to drive to the client's location. I was making €50 euros in profit, wasn't I?

That is one obvious definition of profit: something costs X, I will sell it for Y. This is gross profit, the amount you charge, minus how much it costs for you to actually deliver the service. This definition of profit is exact, but it's very limited and insufficient. It only takes into account the variable expense of the "raw materials" needed to produce what I sell.


Part 2: fixed expenses

What collateral, regularly returning expenses are incurred by running your business?

I used to think I was doing fine as my client book developed. However, I wasn't factoring in fixed expenses: the accountant, the phone bill and my own training. We can often forget these costs because they may not be frequent, regular or immediate, or perhaps they don't require any action at all when they happen through direct debits, etc.

This is the part where I realized the difference between temporary and permanent losses. These fixed expenses were a cost of running the business. They weren't going away and if anything, were likely to rise. I could do two things: either increase my price or decrease my costs. Over a few months, I did both.


Part 3: taking on staff

What is the expense of making your business bigger than just you?

In 2010, Ardle and I opened HayesCulleton, a training and consultancy company specializing in the financial markets, economics and entrepreneurship. A year later, we took on our first staff member.

When you have been pricing your services on the model of just yourself working in the business, it comes as a bit of a shock at first that you have to pay somebody else. And staff has to be paid even when the company is not because it's going through a quiet period. Therefore, your pricing (irrespective of whether you have staff or not) should always include a sufficient amount to cover this:

  1. How much would I pay somebody else if they were providing the service or creating the product? (this is a variable expense)
  2. How much would I pay somebody else if they were taking care of all of the administration of the business? (this is a fixed expense)

Now, you're truly in a position to calculate the "operational profit" of the business. Once you have factored in these three costs, how much money is left? That is your profit.


Part 4: reinvesting in the business

Finally I realised that there is a fourth layer! I had always wanted to invest in the business.

You might reach a point where you are more or less cruising and your own financial situation is stable thanks to your business. You could totally leave it at that, and many do. But I wanted more: I wanted to set money aside for projects that would need financing.

We often talk about setting money aside in the context of something going wrong: a rainy day fund, emergency money... If something happened, would you have the money to deal with it? However sometimes the "accident" is of a positive nature. If an opportunity happened, would you have the money to pursue it? In my case it was the #SavvyTeenAcademy - we had to put down capital to make that happen, and it was an amazing opportunity.


Numbers are your friends: they will tell you black on white what the reality is.


If you've run the numbers and don't feel comfortable interpreting them or don't know what to do next, then talk to somebody. They could be an enterprise agency (your LEO, Chamber of Commerce, etc.), a formal mentor, or you could ask somebody who worked their way out of a similar situation for an informal coffee.

If you realise that you have a number of issues to fix so as to resolve the problem, then fix them! If your pricing is based on an introductory offer, then write to your customers explaining that the standard schedule will be coming into force in x number of months and you're communicating with them now to thank them for their support thus far and to give them adequate notice for their own planning processes.

If you need to negotiate with your suppliers, or change suppliers, to get a better deal (i.e. move from a fixed price to a variable deal to reflect the ebb and flow of your business), then have that conversation. If you need some new technology or training, check out the subsidies that may be available to help. Take action!


"If nothing changed in this situation, would it work in the long term?"


One last thing: make sure your heart is in it. It drives me crazy when I read statistics like "96% of businesses fail over ten years". I don't think "fail" is an accurate word here. People often go into salaried jobs and find out that it wasn't quite what they thought it would be. If they leave and find a more suitable role, anybody would say they made the right decision for them and their employer.

Running your own business is the same. It can be an all-encompassing, financially volatile, time-intensive adventure. It's not for everybody and if somebody finds that in the end they don't really like that "job", then let's call it that, instead the inaccurate and damaging "business failure". Changing your mind when you know yourself and your abilities better is not failure: it's progress, and it's wisdom.

If the emotional weight of the decision is clouding your judgement, you need a totally non-emotional way of showing you where you are headed.

You can't have certainty, but you can have guidelines and Key Performance Indicators. You can ask for help. You can ask for expert advice.

So this is it - when you don't know whether you should give up or continue, you need to ask yourself "If this went on in the long term, would it work? Is it sustainable?" And the only way to answer that question with a light heart is to gather the data, make it a non-emotional decision and then take pro-active steps in the direction of improvement.

Then - and this is a whole other post! - you can perhaps give up, but you can also tweak your approach, find a way around, and even invest in the growth of your business.



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