My wife’s small business has been struggling for 4 years and it’s wrecking our finances — she loves her job but I only make $70K a year and we have 2 kids. Is it time to call it quits

What needs to be considered

A small business that's struggling isn't automatically beyond hope, and it's important to take a close look at the business' finances — as well as your family's — to see if the situation is salvageable.

One of the most important things to do is put together a profit and loss statement for the business to get a sense of how much money it's losing. At the same time, add up the costs of running the business to get a clear idea of how much revenue it will take to break even and/or make a profit each month.

It's also important to create a household budget, and to add the business as an expense in that budget if it's costing you money instead of making you money. But also, try to figure out what the business is costing you beyond the dollar amount.

For example, let's say you're pumping $1,000 per month into your wife's business and are only getting $400 in return. With a $600 loss each month, that’s $600 that you’re not putting into your retirement savings accounts. And if you’re putting that $1,000 deposit into your wife’s business on a credit card, that’s $600 in credit card debt every month that you’ll have to pay off with your own money.

It's important to understand what you and your wife are giving up in order to keep the business going.

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How to know when it's time to call it quits

The Key Small Business Statistics report also found that after five years, 68.9% of small businesses in the goods-producing sector were still operating, and 55.8% of small businesses in the services-producing sector.

This means quite a few small businesses also folded in that timeframe. Meanwhile, today’s economic environment introduces a list of new challenges for small businesses, as the combination of lingering inflation and high interest rates may make it harder for a lot of small operations to thrive.

If you have a small business that’s been sluggish, you may want to consider letting it fold given the current economic uncertainty. According to Deloitte’s most recent Economic Outlook report, the Canadian economy is likely to experience a recession later this year.

Of course, it's not easy to say goodbye to a venture you're passionate about, but there may be a few signs that could help you realize when it’s time to let it go.

The writing on the wall

First, if your family is landing in debt month after month because you’re funding a business that’s losing money, that's reason enough to move on. It's one thing to not turn a profit, but it's another thing to see your personal financial situation continuously worsen.

Secondly, if your struggling business is stopping your family from meeting its financial goals, that's another reason to call it quits. If you're spending so much money on the business that you're not saving for things like retirement, your kids' college or a down payment on a house, it may be time to close up shop.

Also, if the business is a source of marital strife, you might wanna give shutting the business down some serious thought. The stress of a failing business could easily cause conflict in a marriage and you don't want to let things reach a point where your relationship begins to fall apart.

Finally, if you don't see a clear path toward profitability, then it's time to put your business to rest. This especially holds true if the business has already been struggling for four years and you've had time to try to work out the growing pains.

Remember, though, that closing a small business doesn't make you a failure. It takes courage to start a business and sometimes even terrific ideas don't work out for reasons outside of your control.

Rather than focus on the negative side of closing up shop, focus on the positive. You now have an opportunity to potentially pivot into a new career and use the skills and experience you developed as a business owner to be successful in a different role. Plus, after years of struggle, there's something to be said for the guarantee of a steady paycheck.

Also, keep in mind that if your financial situation changes, you may end up in a position where you can start another business in the future.

Once your household income rises or you meet certain savings goals, you may be able to take a chance on a new venture. But if the thing your household requires most right now is money, then you may have to give up on the business you to address that pressing need for the time being.

Sources

1. Innovation, Science and Economic Development Canada: Key Small Business Statistics

2. Deloitte: Trade Tensions Stall Momentum