Workout - How and Why I Closed a 17 Year Business

Workout.  Like the words set or take, this word has more than one meaning. I wish this term meant a route to personal fitness. Instead, for me, workout means a route to shuttering an expiring business. It means a dire situation, not enough money to pay the bills... ever. It means lawsuits and loans and the possibility of bankruptcy. It means legal documents, harassing phone calls and rightful creditors that transform into predators. It means finding a way to live with your self, as the others involved hold a mirror darkened and smudged like a brassy elevator wall.  And, it means getting on with your life – even when you have no vision of a future without the business.

From a distance of ten years after closing a business that designed specialty resource centers - libraries and retail stores for health care and employers, I knew it should have closed much earlier than its final day. I prolonged the inevitable   by generating new sales. Each sale paid for the prior project. I watched the size of sales dwindle and debt escalate. The bank continued to fund the line of credit because with each influx of cash we paid it off, knowing that we would spend it down with the next order of supplies. I felt a huge sense of relief when we won our largest project followed shortly by devastation as the computer system melted down. The cash earmarked for marketing evaporated into servers and software and the computer geek’s time.

I knew the business needed to cease. The rise of Amazon and the increasing ease of finding, scrutinizing and sourcing media diminished the need for our services. Y2K, 9/11 gutted the discretionary dollars organizations could spend, and patient's and consumer's reliance on the internet reduced the original cause of our buyer's purchase. No product improvement or fabulous marketing campaign could make a difference in our trajectory. Anyway, it wouldn't have mattered. I ignored the facts.

Instead, I worked harder. I made more sales calls. I eliminated staff like daisy petals to cut expenses. We gave away excess furniture, sent boxes of books to Costa Rica, crammed the remains of seven offices and 3000 square feet to a space down the hall, with two offices in 600 feet.  I continued doing what I had been doing. I talked to friends and strangers, experts and idea generators to gain perspective and new thinking. Rarely… okay, never, did I disclose the utter hopelessness of the situation. In other words, I knew the truth and a future direction. And, I didn't "own it," as is said. 

One Thursday, the accountant arrived for her twice a month visit to run payroll and pay the bills. Her usual process included looking over the bookkeeper's inputs, checking the payable dates and coming into my office to discuss what got paid, when. That day, she came into my office without her usual cheeriness. For the first time in seventeen years, the line of credit stretched beyond where it was possible to make payroll. That signaled the end. If I couldn't pay staff, or myself, the work couldn't get done. In the recesses of my mind, that was the line in the sand that closed the door.

Within minutes,  I informed my two remaining employees that we were done. The bookkeeper hugged me and said she was relieved - the late payables were a dead give away to her. The other employee sobbed. And sobbed. She joined the company the summer she graduated from high school as part of our Random Task Force. She worked every school break with us. On her graduation day from Indiana University, though she received a teaching certificate, she agreed to set it aside and work for me. Seven years later she faced dusting it off.

My brother, a banker, put me in touch with Bob in Wisconsin who worked with him settling bad loans.  He usually supported the bank’s interests. To my relief, he came to my office the very next day to support my interest.  His first act included asking me to tell the story of the business.

That Friday in the office was Sunday-afternoon quiet, devoid of phones ringing, clacking of computer keys, and chatter. I started the narrative in humiliation, embarrassment and fear. I spoke of the bad decisions, the crumbling market, the early bankers who visited, encouraged, suggested their family for jobs, and the recent bankers who only knew the company by the its monthly financial statements. I told him about the big wins, a bank wanting materials for thousands of employees around the world - even after a surprise visit to our "headquarters" located in my basement, a computer manufacturer asking us to design software, a move to commercial office space, then to a larger one, a conglomerate wanting libraries for every single office they staffed. I described the successful times, the great plans and the problems that occurred. I spoke or rather choked out the names of the people who worked for me and who, the day before closed the door behind them for the last time. I watched them go knowing we did good work. We offered a valuable product. Many customers bought from us multiple times. Though likely unintended, the process of telling the story was cathartic - remembering high points allowed me to face the slog toward the next task. 

Bob filled a legal pad with notes asking me to provide detail on every supplier we used and every bill and promise due. He reviewed each source of revenue and every account – checking, savings, lines of credit, credit cards and receivables. He divided the creditors, those with my personal signature on the line and others where the company held the accountability.   The day the door shut, we couldn’t pay for the supplies or the labor to finish one customer’s project.  Having spent time with the customer and their team, I understood what they wanted and promised them that we would deliver. We couldn’t. This unfinished project and the employees I jettisoned were the most difficult items to add to the yellow legal pad.

Filling the pad finished day one.

Bob returned. He proceeded to lay out a plan of attack. He instructed that I get an unlisted phone number and a post office box in a different town from where I lived or did business. He handed me three handwritten pages with templates for letters for me to type and send to the creditors by registered mail. One letter focused on the customer with the unfinished project.

The first of the two letters for suppliers went to those who did not have my personal signature as security. It explained that the company closed and unequivocally no money remained to pay bills, nor was there any hope to receive a cent from us through collections or a suit.   We sent thirty-two of those. Surprisingly, we heard from fewer than ten of those vendors after ninety days. A few sent collections notices then eventually stopped. I actually received a couple notes sympathizing with our situation and wishing me well. 

The second letter went to those where my personal signature secured the receivable. That group included the landlord where we had nine months left on the lease, our two largest suppliers, and, two banks where we had credit and two highly leveraged credit cards. That letter also stated that the doors were closed, there was no money and we used stronger language that bankruptcy pended. The idea conveyed that they would receive little or nothing.  I was instructed to preemptively call them prior to the delivery of the letter, so we could stay in the driver’s seat for as long as possible. Cumulative debt topped one hundred thousand dollars. The workout had begun.

Bob instructed me to hire a bankruptcy attorney to ensure I worked within Illinois laws. All the research Bob put together, the attorney pushed aside and did his own assessment, charging me for many hours. He eventually came to the same conclusions as Bob. I reminded myself that if the topic was the possibility of brain surgery, there is no doubt I would seek a second opinion. At this point, to say the least, a lobotomy sounded pretty good. The attorney reviewed my personal financials along with the company’s and recommended I stop paying my mortgage and taxes. I was to show that I was personally destitute.

For the suppliers and one credit card, we arranged to pay them with the cash we had in reserve. I left my unique antique furniture for the landlord. While not of equivalent value to the rent owed, it proved attractive enough to quickly recruit another renter. The landlord did not pursue further legal action. The banks and the one customer did.

One Saturday about 5:30 pm, eight months after the workout began, as I was dressing to go to a black–tie birthday celebration, the doorbell rang. Like in the movies, I descended the stairs enamored with the elegance and rustling of my aqua silk skirt as I approached the door. A man in a navy blue police uniform stood a step below looking up at me, as I pushed out the storm door to talk with him. He asked my name, confirmed it on a clip board, declared that I had been served and walked away. My elegant evening plundered. That doorbell rang twice more over the couse of the workout. It took several months, but Bob and I worked out an arrangement to pay a portion of the amount owed to the bank, and we settled the second suit with reserves and incoming receivables.

The third suit, from a bank covering the other line of credit and one of the credit cards was brought eighteen months after we settle the first bank suit. By then, I felt complacent, maybe even hopeful that the bank wouldn’t come after me. I remember thinking that if I didn't bring any visibility my own financials, it would be ignored. 

By then, because I heeded the attorney's recommendations, my house was nearly in foreclosure. As soon as the bank case was decided, I paid the mortgage and brought my mortgage current. I doubt that stand made any difference in any of the court outcomes. The consequence to me however, meant that my credit rating took a terrifying dive. I couldn’t find a bank to refinance my adjustable rate mortgage due to my tanked credit score… just as interest rates soared.  My mortgage nearly doubled over the course of the workout process. A few years later, sitting in the theater watching The Big Short, I realized that mine was one of the toxic mortgages at the crux of that movie. In one of my last ditch efforts to save the company, the banker/friend extended the line on the stipulation that I refi into a new mortgage, so he could show a transaction. I left the theater stunned, and once again aware that every action I took to prolong the life of Longe Life was a self inflicted wound.

Though the suit loomed, Bob advised that I shouldn’t pay the entire amount without the bank coming to the negotiations table. None of the players expected that I would have to pay the full amount owed.  I found a new attorney, one who was less anxious to use bankruptcy as an offense. It took several months of negotiations and two court appearances - one which I was told to stay in the hall as the attorneys talked to the judge. The other person in the hall was the banker who gave me the loan initially. He wasn’t friendly.

The judge ruled I owed money… dollars that I didn’t have available in the time frame stated. Though I didn’t have the cash, the bank could see my retirement funds. each attorney assured me that a bank couldn't go after my 401k and other retirement dollars, but, I learned, they could pressure to  borrow against them.  I didn’t want to lose those dollars nor pay a premium for releasing them. Bankruptcy was now a real option. The good news was, the judge apparently didn’t think much of banks and the money they make. He set my payment at twenty-five cents on each dollar I owed and ruled that they forgive the credit card. 

Even with the significant discount the judge arranged, I did not have the funds to pay the amount. No public institution would extend a loan to me in the wake of the 75 percent loss the bank wrote off. It took a lot of teeth grinding, but I asked a family member for a loan.  We signed a formal agreement using Excel sheets, interest formulas, a monthly payment plan and the promise to sell my home – once my son was out of school.

In the meantime, I returned some of the deposit the customer paid, provided all on-hand materials and supplies in inventory, as well as consultation to complete the project themselves. The outcome remained far from ideal, but the customer appreciated and accepted the attempt to make the project whole.

My son graduated from Indiana University, May 4, 2008, two years after the last court appearance. I'd sold our home as promised, moved May 13 to a rental, and paid off my family with the proceeds.  It took four years, humility, courage, stoicism, and integrity, and the enormous help of  workout King Bob, two attorneys and family help for both moral and financial support to complete the workout.   

Last weekend, a friend asked how long it took to get over closing a business. I never got over it. I got through it and I learned so much from having a business and closing it. It's like laboring to deliver a baby. You can’t stop the momentum. You must push on to deliver that new life. And since?  The bookkeeper went to work for the accountant, and the other employee went with the sale of our software to one of our suppliers. I found meaningful work and I own a home again. Every day, I use the learnings of leading and closing a business. I've worked out reality and peace of mind.