Throwing Good Money After Bad

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Posted by Jennifer Smith on

“Know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run…”

Kenny Rogers may have been talking about gambling, but the lyrics work for business owners too. Over half of businesses in the US have been impacted by COVID this year to some degree and as we wrap up 2020, many are wondering what to do for 2021. Stay the course? Take on debt? Loan the business some personal money to get by? Shut it down? It can be overwhelming.

One disturbing trend that we’re seeing on the balance sheets of businesses is throwing good personal money at a bad business problem. One business we valued recently had sustained $250,000 in losses and had used $125,000 in personal funds to continue making payroll. Unfortunately, the business owner did nothing but prop up the employees a little longer before he had to shut it all down anyway.

Here are some questions that you should talk through with your business broker if you’re trying to decide what to do:

  1. What is the likelihood that things will turn the corner in 2021?
  2. Are you as lean as you can be in your top five expense categories?
  3. Are there parts of your business that are making money right now where you could refocus your efforts?
  4. Are there parts of your business that are draining cash and could be suspended or discontinued?
  5. What would your value be if you sold the business now and what would it be a year from now given the likely scenario for 2021?

A good business broker will be honest with you and tell you what they think. They want you to stay in business and emerge stronger and better, but they also don’t want to see you bankrupt yourself personally or leverage to the hilt when a recovery is just wishful thinking. If you find yourself contemplating these questions as this difficult year comes to a close, reach out to us for a free, confidential conversation. You have our word we will provide our honest opinion and help you make the best decisions for your future.