How to Navigate Business Failures and Bankruptcy as an Entrepreneur
I had a successful multi-location business in the family entertainment industry. Like so many other businesses, in March 2020, COVID forced us to temporarily shut down. We hung on for months, hoping that things would turn around. Disaster relief funds helped some, but in the end, we had to make the very difficult and emotional decision to permanently close.
Signs It’s Time to Close Your Business
When you have a beloved, thriving business like ours, the idea of any sort of closure, temporary or permanent, seemed completely unfathomable. So how did we decide it was time to call it quits?
- Funds were running out very quickly and our debt was building.
- Our partners (landlords, creditors, etc.) were no longer willing to wait.
- We could not give a definitive date as to when we could actually reopen and even if we did we knew that it could take years before restrictions were lifted and families felt comfortable visiting our business again.
After weighing all these factors, we decided our only viable option was to close permanently. It was HARD…undeniably HARD. But the longer we waited, the worse our financial position became. Once we made the decision it allowed us to move forward.
Personal Bankruptcy and Entrepreneurship
Many see a closed business and think – “damn, that sucks” and move on. Well, unfortunately it goes much deeper than that. It’s a lot like dealing with a burst pipe. First you shut off the water (close your doors), then you have to deal with the damage.
Leases with years left on them are still due. Any financing for equipment, initial funding, etc is still due. We were left with millions of dollars of debt for our businesses. This debt was completely justified and manageable when our businesses were operating but when they were suddenly closed our revenue went to zero overnight, but our expenses did not go to zero. We hung on for months – trying to cover the expenses with our personal funds, our 401Ks, even taking out a second mortgage – but when a few months turned into a year we could no longer hold on.
As a small business owner, I had to personally guarantee my leases and any financing we took out. Well, all of those landlords and creditors came knocking at my door. Not only have I lost my business, but I could lose my home, my cars, etc. Our only option was to file for personal bankruptcy. And it sucked.
Personal bankruptcy is not something we ever plan for, nor is it a topic that anyone likes to discuss, but as entrepreneurs, it is always in the very back of your mind. I have taken many risks as an entrepreneur and most have paid off, however the impact of COVID-19 on my businesses was too great to overcome.
Personal bankruptcy is scary and painful but at least it will put an end to the constant phone calls and demand letters. As we power through it, I know we will come out the other side.
I am not writing this for sympathy, I merely want to shed light on this very real risk as a business owner and to tell you that my entrepreneurial journey will continue. For those of you who are not in this position – next time you see a business forced to close, please show them compassion. They have worked hard and invested their money and lives into that business, and the closure will be felt deeply.