A repayment deadline is missed. The significant lender sends the last reminder. You are burning the midnight oil to contact everyone who can give you an ear, but the debt continues to pile as you dilly dally and time creep by. Suppliers are agitated; they reduce their supplies to you to whatever quantity they think they can sustain, your stock re-order formula trashed. At this reduced stock holding, you cannot break even. Your customers, tired of being told some important item they wish to purchase is missing shift their allegiance to the next door business; your competitor. You bleed more financially.
As you are trying to settle into your office and scare off the Monday morning blues with a cup of coffee, the lenders’ lawyer delivers that dreaded intention to sue order. Written in the normal learned friends jargon, it reads “….on the instruction of our esteemed client, noting that you have failed to honor your obligations as stated in the contract signed by yourself and our client, we will move to court in 14 days to seek legal redress for failure to remit the said funds in the said period….”
You swallow hard and compose yourself to think, take a sip of coffee, and call your lawyer. He does not respond immediately, you have not paid him for quite a while and when he speaks, his voice tells it all. “I hope you are calling to pay my debt”. You are desperate, “please let me come over so that we can go through this intention to sue that I have just received from my creditors”. He is your creditor too; he is least bothered and gives you a date three days later.
On meeting the lawyer, you agree to draft a response, in which you ask for more time, but it is immediately rejected by the lenders. You put on a brave face. The kind that you put on when you meet your ex-girlfriend online, posting from an exotic location, looking all cheek and pampered hanging onto the brow of her new man. You know you lost, but somehow, you still hopeful.
You have put four or more years into this business. The sleepless nights, the social events that you had to miss to deliver on some commitments, the employees you looked into the eyes and blatantly lied to; confirming that all was well at the company. The talks, and the office memos, all ending with meaningless words like “we are facing a difficult macro operating environment, but we are well capitalized, our strategy is robust and we will weather the storms and get back into profitability”.
Like obesity, bankruptcy does not check in just one morning. It grows as a result of a series of decisions that you make that turn out to be economically suicidal. The first sign of obesity is a pot belly which you dismiss as either baby fat or a sign of settling down for a man. For financial woes, it is a drying out of cash flows and you ignore your accountants and continue running at the normal pace, refusing to make changes to serve your customers better. Customer complaints are treated as suggestions for improvement and you keep wondering why they are complaining anyway.
Slow decision making on your part as the entrepreneur turned manager coupled with the overly bureaucratic decision-making process in the name of risk controls slows down your people, leading to poor service to your clients and is one big reason why you end up bankrupt. You try a lukewarm restructuring, you change your company’s organization chart and fire a few guys at the bottom of the ladder; nothing changes.
You try to hammer an out of court, but the lenders do not agree, they see your company’s shares as junk. They better get whatever they can at an auctioneers hammer. They drag you on your knees to the courts, and you are placed under receivership. Receivers are more like jealous friends who pretend to want to help sort your problems, but they are happy you are in those woes after all this is their bread and butter. The more of you on brink of bankruptcy the more income they make. They evaluate your strategy mechanically, they lack the visioning, the desire, the ambition and the love that you had for your business idea. They return a verdict that your business model is not workable. You feel like strangling them. You appeal, you lose again.
The court then appoints an auctioneer, a cold heartless, who arrogantly visits your business premises and records all assets that are visible. They pack them as you and your employees look on dismayed and transport them to their warehouse, even the chairs that you are sitting on are carted away. They then place an advert in the papers and people bid for the items.
Going once! going twice! going three times! gone! The lead auctioneer announces and money exchanges hands for your assets.
The bidders do not look behind the veil to see an entrepreneur whose assets, a result of years of toil being scrambled for in a scruffy warehouse in the industrial area. The bidders only see what they will get out of this process, they are selfish. In fact, most bidders are business people who want to profit from the margin by bidding at the lowest. If you had land, or a house or a business premise, it is not spared, sometimes going as low as one-third of the market value. You are officially asset-less and you have to go back to where you began from. That point in life where your only assets were the four or five pieces of change of cloth that you had and nothing else to your name.
Bankruptcy can be quite traumatizing. However, as you plan your business, plans on what to do in case of losses and ultimate bankruptcy should be refreshed annually. As you run your business, you should always look at what the true financials are saying and not necessarily what you want them to say.
Ensure that your accountant can stand up to you with bad news and creative accounting is not tolerated in your business. Instead of waiting for the auctioneers, why not seek protection under bankruptcy or sell some of your assets that you can do without like KQ selling its prime landing slot in London and some aircraft?.