3 Tips to Help Ensure Your Company Recovers from Bankruptcy

“Capitalism without bankruptcy is like Christianity without hell,” said US astronaut Frank Borman and former Chairman and CEO of Eastern Airlines.

While I understand where he is going with that, I wouldn’t explain bankruptcy quite that harshly. True, like hell, no one wants to go there. But there is an escape and it doesn’t have to feel like you are stuck in eternal flames. Or whatever your version of hell may be.

Sometimes the best option to preserve your company is to file bankruptcy. Your business can emerge strong, with happy employees and your reputation intact. Here are three tips on how to accomplish that.

  1. Keep a positive attitude 

I learned this from one of my first turnarounds, a story I tell in my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes.”  Cheerleader Supply, a $65 million a year company with 750 employees, made cheerleading uniforms and supplies and directed camps nationwide. It fell on hard times and I was called in to see it through a Chapter 11 restructuring.

That CEO taught me the value of being a cheerleader in your company as he keeps a positive attitude throughout. When the home team is down, the cheerleaders get up and motivate the crowd, right? They don’t head to the nearest Starbucks and call it a night.

When a company is going through bankruptcy, employees are scared and nervous, which leads to lower productivity. You need your team to be on top of their game. And that requires pep talks. You need to keep your team inspired and motivated so they will keep working hard for you.

I’m happy to report that Cheerleader Supply successfully emerged from Chapter 11 bankruptcy, and I learned that a positive attitude from the leader is crucial.

  1. Be transparent with your employees about what is going on

Another way to keep your employees motivated is to be transparent with them about what is happening. If you and your senior management are meeting behind closed doors and not communicating with your employees, you are fueling the panic and the rumor machine.

People can handle a lot if you are honest with them. What they can’t handle is lack of information. If you don’t let them know what is happening, they will spend a lot of time filling in the blanks themselves, time they could have been working to help your company.

  1. Keep your reputation by communicating with your investors, vendors and customers

To follow up on #2, you also need to communicate with your other constituents, including your investors, vendors and customers.

United Airlines filed for bankruptcy in 2002, then the largest bankruptcy filing by any airline. Prior to filing, the CEO flew to Chicago to meet with employees, while top executives flew to other hub cities. Then after they filed for bankruptcy, the company took out full-page ads in major newspapers around the country explaining the situation and what they were doing about it.

By being open and communicating with all its constituents, United Airlines came out of bankruptcy with its reputation intact a little more than three years later. Its reported net income last year was $4.5 billion.

Back to that quote about hell. Maybe filing for bankruptcy does feel like that. But remember what Winston Churchill said. “If you are going through hell, keep going.”

Scout Motto Still Applies: Be Prepared

“Before anything else, preparation is the key to success.”

Alexander Graham Bell

I watched a sad video today of some of the devastation wrought by Hurricane Sandy in Sea Bright, New Jersey. Block after block of small businesses were totally wiped out. Of those not yet boarded up, all that was visible was a huge, gaping, black interior.

Many of them may rebuild. But a lot won’t. “Small businesses that don’t have a plan in place generally don’t survive after a disaster, whether it’s a flood or a tornado. We see that anywhere from 40-60 percent of those that are hit like that simply don’t come back to business,” said David Paulison, former executive director of the FEMA, in an interview in 2009.

A street in Sea Bright, New Jersey showing the affects of Hurricane Sandy

Truth is, there may not be much you can do to prepare your business if you live by the ocean and are in the direct path of a massive “Frankenstorm.”

You can gather up as much inventory as you can, then ensure that you and your loved ones are in a safe place and hope for the best.

While most business owners won’t ever have to worry about the effects of a massive hurricane, other disasters — natural and manmade — can affect a business anywhere.

I’m currently serving as the court-appointed receiver for a historic hotel. The current owners bought it in 2008 and planned to spend $10 million renovating it, but after they shelled out $7.5 million, water pipes burst and damaged several floors of the property. The owners shuttered the property and tried to liquidate their debts on the hotel through bankruptcy. No go.

So a judge appointed me as receiver to sell the hotel and use the proceeds to pay down the bond debt.

The hotel had been shut down for two years, with no heat or air conditioning. Can you imagine how it looked? And smelled? Let’s just say this is a job bigger than Febreze.

That’s why I say my job is like being a janitor. I’m called in to clean up other people’s messes. This one is going to take more than a mop, a bucket and some disinfectant spray.

The lesson is that you have to be prepared. Better to have a plan and never need it. Remember all those Y2K preparations? My basement was full of drinking water for years. But I never regretted being prepared in the event those dire warnings had come true.

While very large companies often have emergency programs often small and medium-sized companies do not.

If you don’t have a plan, it’s time to make one. Some of the basics to consider when making your plan include:

Investing in disaster insurance. You can get policies that cover the structure of your building, loss of inventory items and even interruption insurance that reimburses you if your company can’t conduct business. (Note that many business insurance policies exclude food and earthquake damage so you may wish to purchase additional coverage if those are areas of concern.)

Backing up your computers with off-site storage. You hear a lot these days about “the cloud.” That’s just a fancy name for a remote server. I know one guy who set up a cloud in his basement so all his computers are backed up away from his office. He also has a generator to keep everything humming.

Setting up plans to conduct business at another location. There are companies that back up all the information needed to run your business and provide the temporary facilities to perform the task.  If disaster strikes, you can show up there the next day and be open for business.

Creation of a list of emergency phone numbers and addresses and contact information for staff, business contacts and major clients. Sure, you have all that information. Somewhere. Make sure you can find all that information fast if you need it.

There’s plenty of information available on how you can prepare your disaster program.

• For small businesses, visit the Small Business Association at PrepareMyBusiness.org.

• For larger businesses, visit Ready.gov/Business

• Visit this IRS site for information on how to safeguard your essential records

• FEMA has additional information for businesses at www.fema.gov/protecting-your-businesses

Just remember the Scout motto: Be prepared.

I’ll close with another of my favorite quotes on the topic by Winston Churchill: “I’m just preparing my impromptu remarks.”