Shut ‘er down– We are done!
A client called me the other day and told me that he had elected to shut down one of his production facilities located approximately 70 miles from his home office. The facility had been very profitable and successful, however, in the past 18 months, increased competition, newer facilities, a decrease in product demand coupled with an ever increasing challenge for qualified labor caused him concern and sleepless nights. At the end of a 6 month period, where he increased marketing and worked hard to market the product that the facility produced, he elected to close the facility.
Now, you may think that this was a rash, emotional, poorly thought out decision. If only he had “stuck it out” another 6-9 months, the business would turn around and the facility would once again become profitable. This might very possibly be the case. HOWEVER, this client had worked diligently on overcoming the downturn and did not see any future. Hence, his decision to close the facility.
A banker told me the other day that he had a client that had several facilities located through out a state that were performing below profitable levels. The banker told me that he told the client that he had until the fall to either show how the poor performing facilities would turn around or what other managerial actions that the client would take so that the bank could continue the relationship with them.
The key here in both stories is that action is needed if you have a facility that is not making money. Maybe the market has changed substantially in the past 18 months, labor availability has decreased, parts and supplies have increased in cost. Whatever the factors are, if the business is no longer profitable, then closing the facility makes good sense.
We have worked with many clients that “hung on” too long when they probably should have taken action to close the facility/store/plant probably 9-12 months earlier. Now, they have spent significant and substantial additional and extra funds and have nothing to show for it, other than a decreased bank account.
Closing a facility or store is a business decision. I would not disagree that some emotion is involved, however, at the end of the day, it is all about money and profitability. Remember, the reason that you are in business is to make green dollar bills! If the facility is not profitable, then you need to take other actions either to make it profitable or change the way that the business is operated. There is nothing else that you can do.
This is a great time to have the counsel of the a business consultant. We rationally and non emotionally review the matter and give you our best counsel/insight based upon the facts of the matter and our mutual understanding of what is best for the company. This is not to be taken lightly- this is a tough decision. It is always beneficial to have another set of ears listening to your rationale and asking the hard questions before you decide to make a final decision. Give us a call if we can aid you in your decision making.