You’re Going to Lose Your Business Because of Coronavirus

I Lost My Business During the Last Recession and The World Didn’t End — Although It Felt That Way for a Long Time

“You’re already dipping into savings to make payroll — you have to close.”

I felt failure wash over me as I heard my attorney’s assessment of the current state of my business. I couldn’t believe it. I had poured my heart and soul, my energy and my personal money, into a business that I loved.

And now, due to economic factors largely out of my control, I was going to lose it all.

We’re a few months into the pandemic and increasingly my social media feed is filled with heartbreaking posts from businesses that are closing.

The yoga studio I had visited on and off since 2008.

The waffle place that was so popular there was sometimes an hour wait for a table on the weekends.

The nail salon in my neighborhood that employed a dozen recent immigrants.

I feel each of these closures deeply, because I know exactly how they feel.

My business failed during the Great Recession of 2008. My dreams were shattered. I came out of it heartbroken, bankrupt, disillusioned and feeling like a loser.

It took me five years to fully dig my way out and recover from losing my business, but eventually I did. And you will too.

If you are a business owner you are likely very scared right now.

When even giant companies like J.C. Penney and Sweet Tomatoes are going under in today’s economic climate, how is your tiny business with the razor thin margins supposed to survive?

It probably won’t.

I don’t mean that harshly, but the odds are not on your side. The U.S. Bureau of Labor and Statistics estimates that 20% of small businesses fail in the first year, 50% fail in the first five years and 70% fail by year ten.

Those figures represent how things were in the good old days, back before you were forced to shut down your business due to a global pandemic.

The failure of small businesses is generally attributed to one of four issues. When you close your business this year — and you likely will — this will be true for you as well.

Reason #1: Lack of Capital

This one is simple. If you are closed, or you can only let a small percentage of your customers into your business due to social distancing, you are clearly going to make less money. A lot less money.

Meanwhile you are still paying rent and utilities and a host of other ongoing expenses that don’t just go away because of a lockdown.

You might scrape by for a while with cost cutting measures or a PPP loan, but eventually the money is going to run out. If large companies don’t have the funds to weather months of closure or business reductions, how can you?

You may be tempted to dip into your personal funds during this time. You may think it’s a good idea to dip into your savings or cash out some of your retirement. Don’t do it.

We are in this for the long haul and eventually you will run through your savings trying to save your business, just like I did. When your business closes, you’ll be left with nothing to fall back on.

I know it hurts, but make the decision early. Don’t jeopardize your future to save your business. It took me five full years to financially recover from trying to save my business using my own money. Don’t make the same mistake, it just prolongs the inevitable.

Reason #2: Lack of Business Plan/Poor Planning

A surprising number of businesses start off without a business plan. Making a business plan is like making a budget — no one really likes to do it, but it’s a necessary evil. Maybe you have a business plan, maybe you don’t. But you can’t plan for everything.

What business plan would ever include a prolonged shutdown?

I had a business plan for my business. It was a good business plan, creating with a mentor for the local small business association. What it didn’t include? Planning for a recession. Nothing in my business plan prepared me for a month when ten percent of my customers canceled their memberships due to job loss, or fear of job loss.

Today’s economic situation is way worse than what I experienced in 2008. Don’t let anyone tell you that you could have or should have planned better to keep your business afloat. You are a business owner, not a psychic.

As you think about the future of your business, you might consider pivoting to a new plan. Can your services move permanently online, thereby cutting your brick and mortar expenses? Should you pivot to offering a different service or product in the future? Or should you plan the least painful way to close your business and get out while you can?

Reason #3: Insufficient Marketing

Most of us go into the business because we love whatever we are offering. Maybe you started your business because you love skincare, you wanted to serve traditional food from your culture, or you wanted to share your creative talents with the world.

You likely didn’t expect the amount of marketing that is required, particularly for a small business. It’s not enough to just be out there. You need to create a social media presence, figure out targeted ads, worry about customer reviews, and plan for sales and promotions. That’s a part of the business most people find exhausting. I know I did.

If you’re still open for business, you might take a look at your strategies here. If you’re closed, take this time to plan how you’ll market the business when you re-open.

Reason #4: Lack of Management Skills or Business Acumen

You may have a passion for your core business, but that doesn’t mean you are good at managing it. Managing employees, keeping up with accounting and payroll, identifying and responding to market trends, and being nimble are all essential functions of managing your business.

Like marketing, they are also the least fun for most of us.

When your business is failing, it’s only natural to blame yourself. “I could have been a better manager,” I remember telling myself after I lost my business. “I should have worked harder to replace lost customers”.

Gradually I came to realize that while I tried my best, there was nothing I could have done to off-set the impact of a global recession. Just like there’s no way for you to manage your way out of the current economic freefall we all find ourselves in right now.

Tips for Closing Down Your Business

I’m not a business expert, but here are some important things that I learned when my own business failed:

Take a long hard look at your business finances. When I started using my own savings to keep my business afloat I went back to the small business association where I had originally gotten a mentor. Someone with way more financial expertise than me evaluated my cash flow, profits and loss and gave me the hard news that there was no way to stop the bleeding.

Get an attorney — right now. This was probably the best advice anyone gave me when I was going under. At first I balked at the expense, but my attorney was worth every cent. To close my business I had to break several contracts, with my landlord, the cable company, the insurance, the equipment rental company. It turned nasty fast, and several of them came after my personal assets, including trying to put a lien on my house. My attorney was able to stop all the nasty calls and letters, and save my house.

Sell anything you can — even if it’s at a loss. Sell your inventory before a creditor seizes it or the business closes, and make as much money as you can liquidating everything. Even if you paid $1,000 for a piece of equipment, it’s better to get $200 for it than nothing.

Talk to other business owners who have gone out of business. Ask them for advice. Learn from them what they wished they had known when they started. Ask them how they recovered.

Don’t short your employees. I paid my staff’s final paychecks out of my savings account, and I’m glad I did. First of all, it was the right thing to do. Secondly, another business owner I know didn’t do this and her employees rightly filed a complaint with the state. She lost way more money on fines and fees than she would have spent paying people what they were owed.

Consider bankruptcy. Bankruptcy can be a hard pill to swallow, especially if your personal finances are in good shape. Bankruptcy has serious reprussions that will follow you for years. But bankruptcy also restructures your debt and provides a great deal of protection as creditors come out of the woodwork claiming your business owes them money. That’s why even large corporations use this tool.

Don’t blame yourself. I felt like a failure for a long time after I closed my business. I blamed myself for starting the business in the first place. I blamed myself for not making it more profitable before the recession hit. And I blamed myself for not finding a way to keep it afloat during terrible economic times. Blame is not helpful. Learn what you can from the experience and move on.

Look for ways to keep doing what you love. Even though your business is closed, there may be ways you can continue doing the parts of the business that gave you joy. Look at things like online shops and services, consulting, or even applying to a similar business that made it through. Keep the passion alive.