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March 2008 - If your business is losing & no prospect for profit – close it down

If your business is losing & no prospect for profit – close it down

☳ by Adam Aspilla

Many think that operating a business is better than working for somebody else. It maybe true because you are your own boss, you work at your own schedule and you can choose whatever position you want: president, chief executive officer & chairman of the board or any position you may want to create for yourself.

 

However, business is not for everyone. If you do not have business acumen and insist on operating a losing business you may end up in financial disaster – you may lose your house and other assets and accumulate tons of debts.

 

A good example was a man who was a good license mechanic. He worked for somebody else and earned a decent income. Moreover, he earned an extra income from his auto repair work done after working hours at his home garage. After years of working for somebody, he realized that he would be earning more if he operates his own business of auto repair shop, considering that he already had some customers on his part time auto repair business at his garage.

 

It did not take long he applied for a line of credit for his capital using the equity of his home. He resigned from his job and started operating his own auto repair business. In his first year of operation he incurred a loss for his projected sales did not materialized for many of his customers who brought their cars on his home garage before he started operate his business did not come to him anymore as he charge them higher than before to cover for the rent, utilities, and other operating expenses.

 

Second year of operation the same story, he was operating at a loss and his equity line of credit was almost running out as he used it to pay the business rent, utilities, and other related business expenses.

 

Despite operating at a loss, he kept on running his business the same as it was at beginning with out advertising to promote his business or to change his management approach. He did not close his business because he already invested too much on it and closing it was not his option.

 

As a consequence, he ran out his line of credit and his house was mortgaged to the maximum and he maximized all his credit cards just to make his business afloat.

 

Finally, his business landlord padlocked his auto repair shop as he was unable to pay his rent. He had no choice but to go back to square one - to work for somebody else as a mechanic after accumulating bundles of debt, defaulted on his payments, and a house on power of sale.

 

If your business is losing and there is no prospect of earning a profit, close it down before you creditors close it for you. You have to remember that business is not for everyone. In the above scenario, he was a good mechanic but not a good businessman.

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.