The Exit Point

murali's picture
domore.jpgExiting a business is a very difficult decision. The issue gets clouded by emotion and attachment towards the business. Is there a rational way to find out when the right time to Exit is?

Being an entrepreneur and running a business venture is analogous to raising children- it takes more time and effort than one can imagine and it is extremely difficult and painful to let go or have them leave the nest.


Businessmen, on days when there are more sales and cash inflows love it and on days of no sales and cash outflows, wonder why they are in business. With all these thoughts daily, having started a business, it is most difficult to get out of it due to various factors and not much material, formula or guidelines are available to an entrepreneur as to when he should exit.


A business may be doing well for some period and may face obstacles, competition, loss of market share, reduction in profitability etc., after sometime making the once successful entrepreneur wonder what has gone wrong in the business. At some point in ones business life, it is almost certain that one feels like getting out of it but one has no clue as to when to discontinue, close, sell or find successors.  


Keeping the business going is the primary intent of all entrepreneurs. For this one has to have continued interest, consistent thinking, methodical approach and dedication to achieve the objectives and above all satisfaction of doing the business. Many entrepreneurs have confidence in their abilities, which is necessary for them to be successful in their chosen fields. Down the line they become over optimistic and commit far more than their business can take or after a small failure become pessimistic and negligent to carry on the business with the same zeal and optimism which prompted them to start the business. 


Though there is a lot of information about on how to run a business successfully, very little material is available on how and when one should get out of business. Most of the time, the thought of closing a business comes only when substantial money and effort is lost and the final effort is only to bury the dead. 


To me, this is the most difficult advise one can give and also to take for an entrepreneur. This is because in failures we are more emotional, irrational and over committed financially with a sense of shame, to refuse payment to the creditors and investors.


With all these, the following may be some yardsticks to sense the time to close the business or change the business line or business model.


1. Your debts are rising-  In business, goods/ services are sold on credit, money is blocked in assets, marketing expenditures, research etc., but the cash flows are not comfortable in the business cycle and one is forced to borrow more and more to keep the business going. This over leveraging will make one work for the lenders and soon the entrepreneur would lose interest.


2. You are losing money and losses are increasing – This is a situation where the business is not able to sell its products or services profitably due to cheaper alternatives in the market, increasing overheads, higher cost of financing, longer credit bargains from customers etc.,


3. You are unable to raise money for the business- An entrepreneur often expects a banker/ lender to finance him for all his business needs. I have come across entrepreneurs complaining of dead lock in business due to lack of support from the bankers. We have all heard stories about how a venture was doing all right until a loan application or line of credit renewal was turned down. A reluctant banker however may actually  be helpful in letting you know that the business is not as you think it is. This way infact lenders might sometimes keep borrowers out of trouble.A loan rejection can be a reality check for someone who thinks his current problems are only temporary.


4. Your inventory turnover is slowing down- If your products are not moving as they should and they remain on the shelves longer than usual is indicative of a slow down. This  calls for re-look into the future of the business.


5. You are not having any fun- Having fun is a serious issue. If doing business is not satisfying, why do it? If you are not enjoying it,take a hard look at shutting down irrespective of the stakes. Chances are you will benefit in terms of your mental health and that is worth a lot.


Many a time, our intuition warns of the problems ahead but we tend to ignore these signals due to lack of introspection and unwillingness to accept  facts as facts. In India as I have come to know we are more emotional than logical and we still mark good dates to start even a bad venture.


Then, how can one get prepared to foresee problems, and exit at the right time?


There are certain requirements that can keep a venture going and reduce the risk of failure. One cannot guarantee success but we can learn how to avoid failures. The following could be some of the key factors:


Avoid over optimism when  successful


Always prepare true marketing plans with clear objectives


Make realistic cash projections


Keep informed of the market place


Identify stress points that can put the business in jeopardy


Identify and develop a mentor who cares for your interests, even if it costs some money.


Enjoy criticism (though difficult) and acknowledge appreciation (cautiously). 


Be sensitive to each of these issues, regardless of the size or type of business.


Failures and disappointment in one business venture do not have to be the end of the entrepreneur. History is full of examples of entrepreneurs who have failed many times before finally succeeding. In endeavors after failure one tends to have a better understanding and appreciation of


a. Need for Market Research


b. More initial Capitalization


c. Stronger business skills.


d. Professional support and guidance.


e. Value of information and ethical business systems.


Finally, all that is to be remembered is to apply the lessons learnt in earlier ventures and to learn from other’s mistakes.


(The author Murali is from DoMore Financials & Consulting (P) Ltd., which provides financial counseling and a helping hand for all financial needs. For feedback send mail to his contact information is in page 24)

Issue BG18 Sep02