After all, how to know when to close a company (and prevent that from happening)

Within a corporate scenario, we are constantly faced with numerous tips on how to get things right. management of a company and promote satisfactory results that guarantee success and survival of an enterprise. But what to do when we start to wonder how to know when to close a business? 

If we take a closer look at the issue, we notice that there is still a certain taboo when we face a possibility that entrepreneur and enthusiast someone would like to contemplate: that of everything going wrong to the point of having to close the doors of the business.

However, it cannot be denied that such reflection is of paramount importance for any and all entrepreneurs. Especially in times of crisis, facing adversities with a frank and realistic look can be of great value. Sourcing for the entrepreneur. 

After all, one cannot ignore the number of enterprises that were not able to survive these uncertain times.

The prospect of having to close a deal is a complex topic, but it is necessary to be aware of the signs that present themselves – even so that the best efforts are made to prevent this fateful decision from becoming the only possible one. 

That's why we, at ZapSign, have prepared this complete content, pointing out what are the main factors that lead companies of the most varied portes and fields of activity needing to close down and how to prevent this from happening.

After all, what are the crucial points that usually lead companies to close?

Within the corporate world, it is a fact that knowledge general that about 27% of companies operating in the market are led to end their activities even before completing one year of their foundation. 

To understand this statistic, it is first necessary to see the main reasons that lead a business to this ultimate destination.

Below, we list some of the most recurrent circumstances that can be fatal for companies.

1. Lack of planning

Without a shadow of a doubt, flawed planning is largely responsible for the failure of a project. investment. We can, therefore, categorically state that “what starts wrong is destined to end wrong”.

Many companies underestimate the importance of establishing a robust business plan, which details the proposal, the management model, the lines of action, the numbers and the future projections of the company.

The lack of well-designed planning implies a total lack of knowledge of the company's positive and negative characteristics, in addition to a complete misalignment with market demands.

2. Financial disorganization

As fatal to the longevity of a business as a lack of planning is a messy financial routine. There is no point in applying a large initial investment if the management of these resources is treated with irresponsibility and carelessness.

Efficient financial management asks for organization, transparency and rigor: payments, inflows, outflows, reserves, stock, flow cash flow and absolutely everything related to the movement of money and material resources needs to be meticulously managed. 

Otherwise, the entrepreneur will have great difficulties in correctly fulfilling his financial obligations, or even in evaluating which specific investments the company should or will be able to make in order to promote the necessary improvements to boost itself.

Still from the point of view of financial management, another extremely common mistake, especially among less experienced entrepreneurs, is the total lack of separation between their personal and business accounts. 

In this way, there is no financial control that is possible, since any slightest carelessness in this regard can cause enormous confusion in the understanding of what really happens in financial life and accounting of the business – not to mention serious legal complications with the IRS.

3. Lack of personal fulfillment

Finally, we emphasize that it is not just financial or administrative issues that are most responsible for the moment to move a business forward. Dissatisfaction on a personal level can occur for a number of reasons and directly affect the entrepreneur's performance.

Whether due to non-compliance with the path taken by the company; due to exhaustion and stress caused by the pace of work; due to relationship and communication problems with other team members; or some other reason, the fact is that personal fulfillment goes hand in hand with motivation to perform their duties with excellence. 

They type of frustration can grow like a snowball, and gradually push the business towards the end.

Still in this sense, we can point out the societal disagreements as major causes of the end of several enterprises. Constant disagreements, bickering, mistrust and even lies are not uncommon between two or more partners – often culminating in terrible legal fights.

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6 tips on how to know when to close a company, but prevent it from happening

Attention to the above points is essential to ensure the longevity of a business. 

Yet fierce market dynamics pose a number of challenges to even the most competent entrepreneur – especially in crisis times, when the vulnerability levels of companies become more egregious, even a solid organization can face situations where the risks are greater. 

Below, we highlight some valuable tips for you to protect your business.

1. The Last Window of Opportunity

Talking about already indebted companies, there is a concept called “last window of opportunity”, which defines a limit beyond which recovering a business becomes, in fact, extremely complicated.

In short, this is what we call the moment before the company's debt reaches a ratio of 4:1 (ie, when the debt value corresponds to four times the revenue value). Crossing this line should be avoided as much as possible – if this occurs, urgent action must be taken.

2. Take a broad look at your business

If your company is faced with a critical situation, it is worth approaching it with a broad view: instead of focusing exclusively on immediate problems, carefully analyze all your internal processes.

This helps to clearly understand what is actually happening there and what is not working and what can be changed in order to maximize results.

3. Cut excess spending

For the company at risk of failure, cut off expenses may be inevitable. After an accurate calculation of the business's monthly expenses and debts, they must all be organized and categorized. 

From there, the need for cuts must be evaluated: from the dismissal of employees to the reduction of physical resources, such as equipment or workspaces.

It is worth mentioning that the dismissal of employees should not happen in any way: the manager must keep in mind that no company can rebuild itself, and that, therefore, good employees are still necessary for the processes to occur with Quality . 

Therefore, only the necessary cuts should be made, and always with due attention to the terms of labor laws.

4. Renegotiate your debts

Another important measure for companies that are already in the last window of opportunity is to seek contact with financial institutions in order to renegotiate their debts.

A widely used way out is the contribution of a FIDC, that is, a company in the financial sector that basically lends money and then receives it back with interest, similar to what a bank would do. The advantage, however, is that FIDCs tend to be more flexible than most banks.

In some cases, this possibility can be denied: that's when it's time to resort to a Judicial Reorganization.

5. Go to court-supervised reorganization

In many cases, judicial reorganization is the last alternative for a given company to save itself. 

It is, unfortunately, a rather slow, technically complex and quite expensive process, which can be resorted to in order to guarantee what we call stay period – nothing more than a period in which a company's creditors cannot file for bankruptcy. 

This period allows the company to gain time to reorganize financially and operationally.

6. Restructure your company in an innovative way

Faced with a critical situation, a good dose of creativity can pave the way for new solutions. 

Maybe this is the time to rework certain projects, products or services; invest in new ways of marketing, in order to boost public engagement with the brand; seek new partnerships; among other innovative practices.

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It is important, however, to remember that it is perfectly possible – and also necessary – to be creative and innovative without being impetuous and to launch the company, whose situation is already quite delicate, into an unnecessarily risky situation. 

To safely promote innovation, it is necessary to go back to the top of this list and take that careful and comprehensive look at the business itself, the public and the market as a whole.

These are invaluable tips for saving a business at risk of bankruptcy. After all, closing a business is, unfortunately, a sad part of the reality of entrepreneurship. 

If it is not possible to save your venture, the important thing is not to take it as a defeat, because everything is a learning experience, which can – and should – be put into practice in future endeavors.

Now, to reinforce everything you've learned while reading this article, and to give your business that boost, how about checking out a complete content that we've prepared with everything you need to know to perform a successful management in your company?