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Morris Kaplan
Smarter Writer

Morris Kaplan is a former finance and venture capitalist who writes for entrepreneurs and professional services firms

Morris Kaplan
Smarter Writer

Morris Kaplan is a former finance and venture capitalist who writes for entrepreneurs and professional services firms

Quitting doesn’t necessarily mean admitting defeat, it’s also a strategic decision to avoid failure.

Sometimes closing the doors and selling up is the right thing to do. US marketing guru and author of The Dip, Seth Godin, says quitting can be a great strategy and a brilliant way to manage your business career. Godin, whose books have changed the way people think about marketing and work, describes the concept of ‘The Dip’ as “the long stretch between beginners luck and real accomplishment.” 

Quitting is something you need to do regularly and strategic quitting is a conscious decision you take when you realise you’re at a dead end compared with what you could be investing in, says Godin - it’s a making a smart decision to avoid failure. But, how do you know when to quit? One way to know is to measure your progress by referrals and sales growth. If your business doesn’t generate word of mouth, doesn’t see new customers and isn’t moving forward, you can ask yourself why exactly you’re sticking with it.

cartoon man on edge of cliff

When to hold and when to fold

  1. As Seth Godin points out, it may be time to fold when there is no evidence of new business coming in and when cash flow is shrinking against a lack of working capital. At least it’s time to find new customers.
  2. If you are not able to meet the payroll or wages and contractor’s bills then alarm bells should be ringing.
  3. If your GST and superannuation payments continue to fall behind, it is time to consider a review of your business case.

Myths about failure

Failure has its obvious connotations for the entrepreneur and business owner, as do the terms ‘bankruptcy’ and ‘insolvency’. It’s a common held belief perpetrated by financial counsellors, financial advisors, accountants, solicitors and other professional services that bankruptcy is a really bad thing. This is baffling as more often than not quitting is a better outcome than sticking with a sick business.

It is often a no-brainer that if you are in financial distress and can see no clear way to paying your debts, bankruptcy is a solution. It allows an individual to press pause on their financial situation, it clears the unsecured debts they are struggling to pay in most instances, and allows the business person time to take a deep breath and start again.

Logical move

Far from being a desperate last resort, it can be viewed as a logical move. Financial stresses can happen to the best intentioned and hardest working people. Things happen and often they are beyond an individual’s control. Sometimes a bankruptcy is a result of a business partner’s personal life going awry, like a marriage break down, sometimes a key client falls over at a time of cash flow shortages and the list of possible causes goes on. Ultimately things happen and individuals find themselves drowning in debts they are unable to pay. 

In America, individuals and company directors are able to seek protection from creditors under what is commonly known as a ‘Chapter 11’. When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11. In most instances the debtor remains in control of its business operations as a ‘debtor in possession’, and is subject to the oversight and jurisdiction of the court. The stigma of going into such an arrangement in America appears far less than that experienced by bankrupts in Australia, although it is realistic here too for a debtor to end up buying back the business from a liquidator.

Verdict 

For sure people will know about a bankruptcy if they are dealing with you in your defunct business or indeed in a new, revived business. But rest assured you’d be surprised at how many people you do know or associate with who have been bankrupt. And they live to tell the tale (although it’s not something people discuss freely).

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