Becoming bankrupt is connected with all kinds of negative emotions and associations. But what is bankruptcy and why is it seen as negative and what can you learn from it?
What is bankruptcy? According to Wikipedia bankruptcy is “a legally declared inability or impairment of ability of an individual or organization to pay their creditors.” In short: you, or the company, can’t pay the debts from current or future income.
Why is bankruptcy considered to be negative?
- A bankruptcy causes serious consequences for the creditors. They will be paid less or not at all what they are entitled to. For some suppliers this may lead to their own bankruptcy.
- A special class of creditors are the investors. They believed in you and the company and put their own money in it. Probably they lose most of that money because investors are usually at the end of the line of creditors.
- For the company’s employees a bankruptcy is often the end of their job. They have to quickly find something new. Their insecurity increases. It may also be a loss of money (out of a job for a while, or having to accept a job with less salary or on a lower level).
- The customers have to look for a new supplier. For mass products or standard services this may not be too serious except a waste of time but what if the supplier of your custom made software goes under? Or the supplier of tailor made production machines? The customers will be forced to quickly find alternatives, a complicated and unforeseen activity which means they can spend less time on things they wanted to do (earn money, for example).
- As entrepreneur and company owner you want to be successful and an important part of that is earning enough money for yourself and the company.
Besides this nobody wants to be associated with losers. The entrepreneur will learn that he will be treated differently: pitied, ignored, treated with anger or sadness, loss of self-determination (the receiver will make many decisions for him, or he is subjected to a debt restructuring process). Also, nobody wants to be associated with losers. The entrepreneur himself may fall in a victim role (‘everybody is against me’) and / or will blame himself (‘I’m good for nothing’). From a successful entrepreneur to a loser is especially in our Western society a big blow for our ego. The more an entrepreneur is united with his success and his company the more painful the confrontation with a bankruptcy. The ‘natural’ reaction is to shut out the pain, to ignore it. To blame others or to lose yourself in a depression, apathy or other self-sabotaging behaviour. Though this is ‘natural’, it isn’t effective.
So what can you do?
- Analyze what happened on the road from success to bankruptcy. What are the facts, what have been the turning points? Was it a pratracted story, or sudden disaster? How come? What was your own role in the story? I recommend not to analyze this on your own but with someone you know and trust, and who is not afraid to ask some searching questions about it. Reveal all the dirt. Write it down.
- From this analysis sift the points that you should avoid in the future. Often you will need to learn new behaviours. Take the time for that.
- Apologize. To your employees, your customers, your investors and your suppliers. Prepare vor possible negative responses but remember: as long as you are open and honest, most people (maybe not at first but then later) will respond positively. If you want to, promise them to redress all the financial damage you’ve caused.
- Look for support. With people who have gone bankrupt before, how did they change what they needed to change? With family, friends, acquaintances and business connections. Be honest about you needing their support. At least morally and maybe also in other ways, for example restarting the company, starting a new one, with a job, or a loan.
- Also remember: however painful a bankruptcy can be, nobody dies of it. Learn from the past but don’t get stuck there.
- Plan for the future. What will you do? Start a new company? Rebuild on the foundations of the old one? A job? Whatever it may be make it realistic and make sure you are supported and keep yourself sharp and focussed.
this piece has been published before in Dutch on ikgafailliet.nl
