Can This Business be Saved?

In this tough economy, many small business owners find themselves on the brink of throwing in the towel. But how do you know when it’s time to shut your doors for good or whether you’ve just hit a rough spot?

Several years ago, Brock Blake, CEO of Lendio (formerly Funding Universe), a Midvale, Utah-based company that connects small businesses to lenders, was wrestling with that question. His company was bleeding money. His business plan to connect companies with venture capital wasn’t working—95 percent of his customers were “Main Street” businesses that venture capitalists had no interest in funding. Things got so bad that two days before it was time to process his payroll, right before the holidays, he had to ask his employees to go without pay for three months, in exchange for equity in the company’s profits.

Here’s how to save your business:

React quickly.

Blake says he could’ve acted more quickly to save his business, but he was in denial. “You don’t want to face that as a business owner because you didn’t ever want to be in the position,” Blake says.

When your business is in jeopardy, you should always react quickly, says James Sinclair, a consultant who focuses on distressed restaurant operations with OnSite Consulting, a nationwide consultancy in Los Angeles. The most common trait of a business on the brink is denial, he says.

“They call us when death is on their doorstep,” Sinclair says. By the time an owner calls him, it’s almost too late. They’re often paralyzed by pride or shame. “Now the solution is going to be twice as difficult,” he says.

Evaluate profitability.

One of the first things Sinclair tries to find out is if the business he is working with is designed to make a profit. He coaches them to reassess their pricing and overhead expenses. “Every [business decision] should be based on profitability,” he says. Sinclair advises owners to go through “every invoice, every service, every vendor, every schedule,” he says, adding that it’s easier for owners to cut 5 percent from their overhead than add 5 percent to their profits.

Create a new business plan.

Blake retooled his business plan, making sure it would add to his bottom line, and increased his income streams. (Businesses can pay a monthly fee to get connected with lenders or get a revamped business plan, and creditors pay to get in front of potential borrowers.) In the last two years, his company has facilitated $240 million in loans to small businesses.