There’s No Shame in “The B Word”

“The real test is not whether you avoid this failure, because you won’t. It’s whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere.”
– Barack Obama

Justin and Adam called me to talk about writing a business plan. They wanted investors to help them expand their operations into a new location.

They were losing their lease in a few months to developers. They assumed they’d never get such a good deal on rent, so they figured they’d increase production to cover the increased rent. They’d need funding to move and expand their facilities. Business was booming; and after the initial shock from Covid things we’re looking up.

As we dug into the whys and hows, it became clear that their growth strategy probably wasn’t the right strategy.
Red Flag #1 – A bank wouldn’t give them a loan. According to Justin, their ratio of debt to assets wasn’t good, so they were looking for investors.

Red Flag #2 – The stress of the business was wearing heavy on Adam. In fact, he wanted to scale back the business so they didn’t need employees. But he couldn’t figure out how to move the farm and scale back operations.

From there, the call headed south.

As I looked at their books, and the balance sheet specifically, I knew there was no way they’d get investors (they had already been turned down by their bank for a loan). After 10 years in business, they had over $700,000 in liabilities and $350,000 in assets.

None of this was adding up. They didn’t want to grow the business but we’re planning to do it anyway because a) they needed to move the farm-operations; and b) they were so deep in debt they were ready to take on more so they could, um, dig their way out?

I made the painful suggestion that they consider filing for bankruptcy. As it turns out, their lawyer had made the same suggestion. They called me hoping to get a different opinion.

The “Big B” … there’s so much shame wrapped in that word and what it symbolizes. The shame whispers in your ear that you are a failure and people will judge you harshly. The shame can be paralyzing and lead to an escalation of commitment (in this case, taking on more debt in the hopes of turning the corner). It’s an inability to walk away from a failing business, which often just compounds the problem.

Filing for bankruptcy is one of the many ways people feel money shame (I address 4 others in my new book). Honestly, it’s no wonder, since we’re taught to never talk about money in “polite” company. The internal dialogue goes something like this, “I filed for bankruptcy, therefore I’m a failure.”

To be clear, there is NO shame in bankruptcy.  The only way to have future success is by letting go of what isn’t working. For a business that’s deep in debt, this may be the only viable option to move on and work towards future successes. The narrative can be reframed to say, “I made a mistake. I’m learning from it, and I will do things differently next time. My business may have closed, but there were some successes. The business may have ‘failed’, but I am not a failure.”

As I shared in July’s article, there are emotional and pragmatic components of decision making. The numbers are objective and unemotional. They tell a clear story.  In Justin and Adam’s situation, several factors stood out.

• Though the business had an operating profit for the last 3 years, it had cumulative losses of $400,000 from the 7 years prior to that.
• Even though the business was profitable, it was not enough to dig their way out of debt. Even with additional investment (as desired and the subsequent debt service), they wouldn’t be able to dig themselves out within 10 years.
• The owners had paid themselves, but the debt was increasing. In other words, they paid themselves at the expense of increasing debt.

To diffuse the emotional component and make a data-driven decision, it helps to research the logistical steps towards an overwhelming decision. For Justin and Adam, that meant understanding what bankruptcy looks like and how it will impact their future ability to launch another business or get a loan. Their lawyer can help them think through this.

Further, shame thrives in silence. The more we talk about it, the less power it has over us. To that end, if you ever filed for bankruptcy, what advice would you offer a fellow entrepreneur struggling with the same decision? I would love to share (anonymous) words of wisdom.

While I don’t take this recommendation lightly, it can be the right decision. And it can help you get to a better place with new opportunities.

** Disclaimer: I am not a lawyer (and I don’t play one on TV). If you are considering bankruptcy, I encourage you to seek professional advice from an experienced bankruptcy attorney.