I Can Always Bounce Back from Financial Bankruptcy
Financial bankruptcy has been stated by many an attorney that “It will be a minor inconvenience for a short period of time.” To put any faith in this statement is not only foolish; it is a terrible miscarriage of trust. Your family trusts you to take care of them financially as well as emotionally. Financial bankruptcy is not a short-term inconvenience; it has long-lasting consequences.
This inflated sense of self has led to the demise of a great many individuals, both emotionally and financially. To bounce back may sound like an innocent enough belief, but it is not as simple as dusting yourself off and getting back on the horse. Having your pride wounded is one thing, going broke is another. The emotional scars from an accident may heal just fine, but the damage to the emotional state of yourself and that of your family are not so easily healed.
Risk (Financial Bankruptcy) and Return
The logic of business dictates that it takes money to make money. Resources invested for some level of return on that investment. The major reason for failure of small business has routinely been reported as lack of financial resources. It takes far more money and far more time to turn a business venture into a profitable venture than most people expect. I believe that one of the reasons is lack of planning from the onset of going into business that leads to its failure. Unforeseen things happen when starting a business. These can range from finding and obtaining reliable sources of supply, fabrication issues, quality assurance issues (all causing delays and lack of revenue for a longer period of time than anticipated).
In business and in life, there is an amount of risk we must take if we wish to gain something. There is always a price to be paid, but it isn’t always paid with money. Entrepreneurs and business owners take risks every day, much the same as everyday citizens. We risk finances, emotion and also the hidden risks of the security of every employee working under you. The families of your employees are counting on them to provide financial and emotional security, and counting on you to be a good business person. It all falls on you. You carry a great responsibility, so don’t take it lightly.
Finances and Credit
Entrepreneurship is such an exciting concept; carving your own path through the woods of business. Getting into business may be easier than staying in business, financially speaking, that is. Billionaires like Nathan Blecharczyk, Brian Chesky, and Joe Gebbia of AirBnB fame tell many a success story. These three young billionaires started out as a pair of guys that couldn’t afford the rent on their tiny apartment. They offered air mattresses to visiting conventioneers in San Francisco, and with money from credit cards, selling cereal, and a host of other financing ploys to keep the fledgling business afloat. After three years of struggle, eating the cereal they couldn’t sell, Sequoia loaned them $600,000, and the rest is history. The point is they risked their financial future on their idea. They put every single penny they could scrounge, their emotional well-being that of their parents and siblings became part of the risk, and years of stress. It finally worked out. They are billionaires today, when just several years ago they were struggling guys trying to pay the rent.
Many entrepreneurs risk everything they have on their dream of hitting the big time. They rack up debt on credit cards; string them from one to the other to extend their credit lives, only to fall on their face and go broke. There comes a point when the interest is the vast majority of the payment, like the Vig owed to a bookie. At what point does a person with this mentality call it quits?
The Emotional Toll
As an independent business person, your emotions are a very important aspect of your personality, and have a lot to do with how you are perceived by the community at large, your peers and your team. Family is quite another issue, but with all of these people, displaying an “everything’s just great” persona, while your insides are churning with despair and worry can be tough. Those around you can usually sense that something is not right, so why pretend? The stress of trying to fool everyone isn’t worth it.
“If I let the staff know we’re in serious financial trouble, they’ll quit,” is just one of the millions of thoughts of desperation that run through the mind of a struggling business person. “If my spouse finds out I put a second mortgage on the house to save the business, she’ll kill me,” is a thought just as frightening. Is all this worth it? Many a family has been destroyed due to financial hardship.
Life After Self-Destruction
With statistics of 9 out of 1o businesses fail during their first year, your chances of success are less than 10%. After five years, nearly every business is history. In reality, less than 1% of the entire population find true financial freedom.
There is no promise of success, only hope. Hope dwindles over time if things don’t go the way they were intended. Unpaid credit card debt, personal guarantees on bank and investor loans and a stack of unpaid accounts receivable can discourage the staunchest of entrepreneurs.
Keeping the company afloat is seldom a good idea, but one that nearly every entrepreneur clings to. Fear of loss is a greater motivator than the advent of gain, so clinging to an idea makes sense, at least in the entrepreneur’s mind.
Filing for financial bankruptcy is a right of every citizen of this country, but it is not a panacea. These laws were created because some politician needed a way out of a massive financial problem, so Washington cronies designed a loophole that if good for one, needed to be good for everyone. It wasn’t a benevolent government that decided to give citizens a break, every tax law on the books was the result of an individual’s need for relief. Filing bankruptcy sounds like a fair and just way to get out of a jam, but you are merely stepping out of one mud puddle into another.
In order to file for financial bankruptcy, an attorney is required for corporations and partnerships, but individuals can still represent themselves. The trick is to getting the necessary paperwork completely correctly and timely. An attorney makes sense in either case, but it is possible to file on your own.
The first requirement of a financial bankruptcy attorney is getting paid, which is counter-productive in a way. Couldn’t the money used to pay an attorney go toward reducing debt? Of course it could, but the accumulated debt is typically much, much more than the $2500-$10,000 or more a lawyer will charge.
Once the court has rendered a decision, and approved the Chapter 7, 11 or 13, your problems are far from over. Today’s laws will negatively affect your credit rating for ten years or longer. The old theory of “reestablishing good credit in two years rarely applies any longer. Banks are unwilling to lend to high credit score individuals, let alone entrepreneurs with a bad history of credit.
Once enough time has passed, the bad stuff on credit reports is supposed to come off, but the reporting agencies often need “reminders” and nudges in order to get them to focus on your specific file. I am knowledgeable of individuals with tax liens that have been satisfied to remain in a person’s credit report for years, let alone weeks or months.
In the End
Before you putting up the 401 K and the house equity to fund your new venture, bear in mind the negative consequences that can come into play. This is not meant to discourage you from chasing your dreams, but to have you do so with eyes wide open and a clear head. Emotions run high when something new and exciting is happening. Make sure you have considered all the pluses and minuses before you quit your job and dive into entrepreneurship.
It is also wise to consider getting a second opinion; a business plan evaluation from a qualified source, like a business coach or business consultant, might make a significant difference.