Yury Yavorsky – Bankrupt.Me-Not. Book of Problems (страница 2)

She was certain she was entitled to slander the debtor in court and was cynical to the point where she didn’t hesitate to triple the debt amount just to prove in court that the debtor was a swindler. That the debtor had been borrowing from the very same bank for more than 20 years without a single day of payment delay, largely paying back the loans taken out for business development at an interest rate of 15—25%, she would not even want to talk or hear about. Example one: my acquaintance once told me a story about a bank lawyer.

When the crisis collapsed sales, the bank foreclosed on the entire property for a quarter of its value, refusing to revalue it and leaving the businessman in debt to other creditors. This is how a successful property owner turned into an entrepreneur with a mountain of debts. Example two: a bank has been lending money to an entrepreneur for many years, using the property built with the loans as collateral.

do not give up, study the intricacies of bankruptcy procedures thoroughly. This fairly uncomplicated subject does not require a university degree – just diligence and a competent hands-on lawyer. Solution:

SECTION 3. INEVITABILITY

For many people, the inevitability of bankruptcy is a personal catastrophe above all else. Successful yesterday, bankrupt today – how do you live with it?

PROBLEM 8

The banking community is abundant with ‘hotshots’ able to convince you that all you have to do is take out a loan and all your problems will be taken care of by the bank’s capital as long as you are making timely interest payments. Given: the issue of payment arrears inevitably looms when the difference between income and expenditure on the corkboard in your office changes sharply from positive to negative compared with the results of the previous operating month or quarter.

Yes, there are some very talented entrepreneurs out there who are able to grow exponentially with a loan at 15 to 25% interest…

Only when the economy or a particular economy sector is growing, or perhaps a particular company has struck it lucky or come up with something that its competitors haven’t got. But it is abundantly clear to the author that a business with a loan portfolio in excess of 50% of its annual turnover is inevitably heading for bankruptcy. Question: but if the average profit in developed economies is less than 10—20%, how can one pay 15—25% interest rates?

if a business executive or entrepreneur does not want to see a ‘black swan’ from the window one day, he should monitor the immediate future for the inevitable moment when it is no longer possible to increase cash flow. Only a growing business can cope with borrowing, otherwise you are on a down escalator. If your turnover has stopped growing or earnings have begun to fall, the loan with its draconian interest rate must be urgently reduced or disposed of altogether. Solution:

We often believe that we are the ones to be spared. If the entrepreneur in Problem 7 (Example two – the bank foreclosed on an undervalued property for next to nothing) had sold some of his property even at a discount in good time, he would have been able to pay off the loans or reduce them considerably, and then use the remainder to invigorate his business again. But it is hard to switch from a Mercedes to a more modest car, or to sell a country estate that is not needed at the moment! No stomach for it. And, inevitably, the entrepreneur loses the property in a court of law, with the creditors snapping it up for a mere song.

Sometimes, instead of borrowing as a sole way to generate cash, you have to move your bad sellers even below cost.

He sold the profile cheaply in order to attract ‘anchor’ customers who would buy the core revenue-generating product in addition to the profile. In the end, he got so carried away with profile sales (the price was attractive and competitive!) that they far exceeded sales of the flagship product. Example: a friend of mine made profiles for dropped ceilings to attract customers rather than as a flagship product.

Sales kept growing, but the share of loss makers in the company’s turnover shot ahead of the profitable product share.

Inevitably, a disaster named bankruptcy started looming. Before he knew it and could pull the plug on production of the unprofitable product in time – there was no money for regular payments; materials, rent, electricity, and wages ate it all away, and taxes and interest were piling up. The only way to stop the process was to declare bankruptcy…

SECTION 4. PSYCHOLOGICAL TSUNAMI

The Damocles’ sword of bankruptcy is not the loss of wealth per se but, above all, the psychological state that comes over a man who was successful just yesterday, dividing his life into before and after.

PROBLEM 9

Just yesterday, he and his company were on billboards, on magazine covers, on employees’ name tags, on the sides of cars, on business cards given to numerous officials, suppliers, and customers… In short, the company was a respected employer… Then suddenly, the soon-to-be bankrupt has to sever his connections with everyone. He locks himself in his luxurious country estate or drives off, wherever the road takes him, behind the wheel of an expensive car. Given: an entrepreneur, who is usually well known in the place where he was born, where he grew up and where he has developed his business, cannot escape his recent popularity at the drop of a hat.

It sweeps over everyone in equal measure, irrespective of the size of the business. When debts exceed the ability to pay them off, it is only the dishonest and criminally inclined who can remain indifferent. The rest of us realize that once all the resources we have feverishly sought to avert disaster are exhausted, the ‘great water’ will inevitably come to wash it all away. Question: what exactly is a psychological tsunami?

A ruthless tsunami tears down harbors, seaside villages, and coastal towns, flings ships of all sizes and displacements onto the shore, smashing everything into tiny pieces. Similarly, bankruptcy shreds the usual rhythms and values, veers the meaning of life, and destroys what was dear just yesterday. The psychological tsunami smashes and ruins the lives of all people, however famous they are: it pulverizes tangible and intangible assets of any value, nullifies everything that has been built over years or even decades and provided a living for tens and hundreds of families. Those who are not legally savvy or do not have their in-house legal service feel even worse as they realize that they will not just fail to pay their debts but will also be dragged into the maelstrom of criminal prosecution.

Unfortunately, as practice shows, no one usually prepares for a potential bankruptcy or even thinks about exploring a civilized mechanism of protection from creditors well in advance of it. Nobody wants to even conceive that this can be possible for a business that was successful just yesterday. Solution:

Why do we listen to preflight safety briefings for the umpteenth time: what to do in case of ditching, how to inflate a life jacket and blow the whistle? Why do we practice running to the lifeboats on a cruise so that we know in an emergency which lifeboat is ours, where to find it and how to put on our life vests? And why do we not prepare in advance for a potential bankruptcy? It may be just around the corner, especially after yet another economic crisis.

Every single soon-to-be bankrupt becomes panic stricken, desperately grasping at straws, as the vortex of impending bankruptcy begins to suck him in.

One should always prepare for bankruptcy by running ‘command-post exercises’ or ‘management games’, just as military officers run simulations on maps or in a giant sandbox, recreating the terrain of the eventual theatre of operation. It is crucial to keep drilling who will do what when unavoidable bankruptcy first starts gently knocking on the window and then bangs on all the doors. Check the lifeboats and life jackets, make sure the oxygen cylinders are full and the parachute is properly packed. If bankruptcy doesn’t take you by surprise, there will be no panic, and no psychological tsunami.

SECTION 5. CENTRIFUGAL FORCE

To fear is human:

some are afraid of water, others are afraid of confined spaces, yet others are afraid of heights, and some are afraid of a little bit of everything.

PROBLEM 10

But people treat bankruptcy in different ways. Some know how to deal with it in a civilized way, and how to manage their assets competently in times of trouble. Others begin panicking, rushing around, blaming everyone else, and feeling sorry for themselves. Given: there is no one who is not afraid of going bankrupt.

As a general rule, the soon-to-be or recent bankrupt can lose several days of sleep. Then depression sets in, sometimes extremely severe and unknown to someone who was so strong and unyielding in any business fight, who used to know no fear in the face of guns and knuckledusters of a gang of robbers or the wrath of creditors and controllers, who has always been ready to go through hell and high water for his business, no matter the weather and the time of day.