Bankruptcy. Most people think of insolvency as the end of the road for a broken business — an admission of failure. But Gregory McDonough, author of The Turnaround, believes that bankruptcy can actually allow a company to restart, renew, and improve.

Greg is a seasoned executive who mentors companies ranging from startups to $100 million dollar enterprises. He’s led companies through countless turnarounds, mergers, and acquisitions.

In this episode of Author Hour, Greg talks about what it’s like to face your professional death spiral, and how to stay mentally sharp when navigating bankruptcy.

Listen in to Greg to learn:

• Why bankruptcy doesn’t have to spell the end of your business
• How to survive the emotional and physical toll of bankruptcy
• What indicators to look for when deciding whether bankruptcy is right for your organization

When did you decide that Gregory McDonough was going to become an author?

The moment came for me while I sitting in the boardroom with our management team, our bankruptcy attorney, our potential bankruptcy attorney, our internal counsel, and a couple of other people.

The discussion was centered around the question, “Do we close the doors to the business? Or do we file for Chapter 11 bankruptcy and hope to come out the other end?”

As the CFO of the business for the past six years, I was feeling pretty disappointed in myself and had pretty low self-confidence. We had three years of good times and three years of bad times. I kept asking myself, “How did we get here?”

I’m the person holding the purse strings, managing cash flow, and trying to keep the lights on. I couldn’t get rid of this, “I should’ve seen this coming,” sort of feeling.

It was exhausting and stressful all at the same time, and this was supposed to be a stepping stone for me and my career. I was going to take this $10 million dollar business and turn it into a $30 million dollar business.

I had true aspirations about the positive trajectory of this business when I joined, yet here we are in December talking about closing the doors or filing for bankruptcy.

Then the bankruptcy council turned to me and he said, “Greg, you know, not many CFOs see this process from the inside. It could be a real opportunity for you to gather some experience in an area in which others haven’t built experience.”

There are obviously law firms, turnaround firms, and other financial advisers out there that can lend a hand when businesses find themselves facing bankruptcy, but they tend not to pay much attention to the small business owner.

So I got excited about the journey and I stepped up to the opportunity, and that’s when I knew I wanted to share this experience with others. The result of all that is this book.

But between that meeting and the final outcome, I spent many long nights Googling all sorts of terms to try to understand what the process truly means for me and my family and for the business as a whole.

“There were a lot of unanswered questions at the beginning of the bankruptcy process. I was feeling unprepared and unadvised but eager and excited for a new opportunity—even if it wasn’t something that many people get excited about pursuing.”

How did the business you worked for find itself facing bankruptcy?

The business was doing about $10 million dollars a year up until 2008 or 2009 when the economy shifted. A huge part of our business was in training; it was an instructor-led training business where we would hold classes for editing, writing, desktop publishing, and some other communication skills.

Many government agencies and government contractors had associations around Washington DC, so they would send their employees to us to be trained in whatever communication skills they needed to improve.

Then 2008 hit and the marketing budgets and the training budgets of these organizations vanished, basically overnight. So the revenue from that side of the business declined close to 80% over the first two or three months of the recession.

At the time, we had a tremendous amount of resources that were required to run that type of business. We had real estate, classrooms, IT equipment, and IT professionals to maintain all of that.

These weren’t necessarily fixed assets or fixed cost, but they were difficult to stop. We had contracts that we were in that we had to maintain, so our cost structure remained stable during that time while our revenue turned upside-down.

How did you personally and professionally navigate through the bankruptcy process?

The first thing I did was a Google search. I read the white papers, talked to our bankruptcy council about the process, and then I signed up for a certificate that’s related to company turnarounds.

It was called the Certified Insolvency and Restructuring Analyst Certificate. It’s three years with classwork and a final examination. The whole focus is about learning the bankruptcy process from a financial analyst’s perspective.

That gave me a really good peer group to bounce questions off of and to understand the mechanics of the process with an insider’s perspective. It really was immensely helpful.

The second thing I did was I hired a professional coach and a personal life coach to help me keep the broad picture in front of me.

“It was very easy to get stuck into these feelings of depression and overwhelm, so having a life coach that I could sit down with once a week to talk about these things allowed me to step back from time to time and say, ‘Hey, let’s look at all the things that I’m accomplishing and the direction I’m going. Let’s keep focused on the goal, versus being stuck in the weeds.'”

Finally, I joined an organization called the Entrepreneurs’ Organization (EO), which is a peer-to-peer experience sharing organization.

EO put me in a room of 150 local entrepreneurs, several of which had similar experiences with turnarounds. That allowed me to share my experience with them and compare what I was going through with what they had gone through or contemplated going through.

So again, what really helped me get through this process was research, then some practicality with the certification, and then a good support group around me.

And I can’t forget my family, obviously. They were very supportive throughout. We’re a very tight family, which is wonderful.

Can you tell us more about your book, The Turnaround?

When I was awake in the middle of the night in December of 2011 contemplating the business going into Chapter 11 bankruptcy, I couldn’t find a good resource that told me the process from a practitioner’s perspective.

What does it truly mean from the inside? What is the process? How are you going to feel going through this process? What are some of the emotions you’re going to be dealing with? What’s the pace like?

“I really just wanted to hear somebody’s story that said at the end of the day, “Hey, you know what? It’s going to be a tough road, but you’re going to be okay. Stay positive. Stay committed to your goals,” but I couldn’t find it.”

I couldn’t find it in a book, I couldn’t find it in a white paper, and I couldn’t find it by Googling.

So when I got about halfway through the experience which would have been in 2014 when we were coming out of bankruptcy, I decided that this story needed to be told.

Bankruptcy can be used as a tool for organizations facing similar circumstances, and it shouldn’t be looked at in such a negative light.

“It is painful, it is stressful, it is expensive, and it takes a long time, but for the right business at the right time, bankruptcy is a great tool.”

But the broader story is the shift in mindset to, “Hey, bankruptcy is not the end. It’s just the beginning of a new journey.”

What’s the #1 takeaway from The Turnaround?

Think bigger.

What I mean by that is that the possibilities in life and in business are much greater than what we experience in the day-to-day.

It’s very easy for a business owner or an entrepreneur to get stuck in the routine, to get stuck in the day-to-day of managing a business payroll-to-payroll. As business owners, we very rarely take the time to step back and understand what the big picture is.

What’s the big goal that we’re trying to accomplish?

The most important tactic, would be: think big goals.

One of the big goals that I took on while going through this process was signing up for an Ironman triathlon, as it’s something that I had never done.

I’d been a swimmer in the past, but my cycling was terrible and my running was even worse. But my wife was getting into the sport at shorter distances, so we started working together and training together. That provided some balance to the work stress that I was incurring. I was able to release a lot of that stress through triathlon training.

Eventually, I said, “Why not? Why not try to go for the biggest goal out there in the triathlon and athletic world?” So I set a goal to complete my first Ironman triathlon.

I would say that’s the second most important tactic: Don’t just set big goals for your business, set big goals that are outside of business, goals that you can work toward in your personal life.

That way when you do have that feeling in your business that you’re not accomplishing anything or when you’re experiencing depression due to work stress, you at least have something in other areas of your life that you’re accomplishing and that you’re making progress toward.

So my biggest takeaway would be to use these two tactics: 1) set big goals, and 2) diversify your goals to have something in your business that you’re trying to achieve and something in your personal life that you’re trying to achieve. Then systematically go after both.

How did your company rise out of bankruptcy?

First, we got a good attorney. The courts won’t accept your bankruptcy case without counsel, so we talked to several very big international firms that we couldn’t afford, and then we found a small firm that was around our size that we could afford.

One of the things about the bankruptcy process is that it’s been in place for many, many years, so once you’ve started down that road, it becomes pretty systematic in terms of court filings and motions and things that your attorney can handle.

What I found was that the real art of managing a bankruptcy comes down to making commitments in terms of where your business is going to be financially down the road. You have to get good at financial forecasting and explaining to the outside world how you’re going to achieve the things you say you’re going to achieve.

“The bankruptcy process really brought a layer of accountability to the organization that we hadn’t had before.”

You feel very much like a fish in a fishbowl. All the documents you file with the court are public documents. You’re being asked questions from your smallest creditor all the way up to your largest creditor, as well as from opposing attorneys and your secured lenders.

Another big part of the bankruptcy process is being able to empathise with creditors. If you can view the situation through the eyes of your creditors, you’ll have a much easier time communicating with them in a way that allows you to keep the process moving forward.

There were also a couple of things that I thought were unique to our process.

First, we didn’t lose any employees through the process. We had some difficult conversations with our employees centered around why we found ourselves in the situation that we were in, but we explained clearly how bankruptcy fit into the picture and how it was going to be beneficial for us.

We stressed that it wasn’t going to change their lives that much, and because our employees knew that I was still going to manage the process, first as CFO and then later as president, they felt more confident in the outcome. They could see that upper management wasn’t jumping ship.

Second, we did lose a couple of vendors, and that was understandable, but at the end of the day, most of our vendors came back to us and said, “Hey, you know what? Your credit risk is a little higher, so we’re going to increase our pricing because obviously, we’re going to lose some money that was on your accounts payable schedule when you filed, but we’ll still work with you.”

We worked very hard to pay our vendors quickly and to deliver a vision that made sure our vendors were treated better than they were treated before. At the end of the day, they were excited about getting back into this new vision and coming back to work.

Finally, we didn’t lose any clients.

We weren’t selling aircraft carriers to the US government, so, the credit risk on the work that we were doing was much smaller than a much larger organization, but as long as the clients had the same team, the same pricing, and the work was getting delivered at the same quality, they were indifferent about our situation once we filed for bankruptcy.

So, it’s was really about managing that systematic process. Doing the filings, taking the phone calls from the attorneys, going to meetings at the courthouse. It becomes another project on your desk, but it’s a project that allows your organization to hit reset.

How does your book help people who are going through the bankruptcy process right now?

The main thing that the book gives readers who are contemplating bankruptcy, or are already months or years into the process, is the knowledge that you are not alone.

“There have been organizations, there have been entrepreneurs, there have been people that have gone through the bankruptcy process and have survived.”

Do not be afraid to use bankruptcy as a tool to renew your business.

My biggest takeaway from our insolvency was that if we had known about this tool and how it could be useful back in 2009, we could have filed for Chapter 11 back when the business had more revenue, clients, and potential.

When is the best time to file for bankruptcy?

It varies obviously for every organization, but some of the indicators I would look at, and I talk about these more in the book, are, first, where is your time being spent? Meaning, as the business owner, are you spending the majority of your time dealing with past issues or dealing with future issues?

If you’re spending 80% of your time keeping your vendors and your creditors happy and very little time on where the business is going, on your grand vision, or on your employee morale, then you may have a problem.

Similarly, I would look at my cash flow on a monthly or weekly basis and ask, “Where am I spending my money? Am I spending it on current expenses that are going to propel revenue in the future, or am I spending the current dollars on past problems?”

“If you’re spending so much time and money on past problems that you never really have the resources to reinvest in your future, that’s an indication to me of when a bankruptcy petition should be considered or at least brought into the conversation.”

If you’re not investing in the future, you’re not going anywhere. You’re headed toward a death spiral.

Another indicator would be skipping your own payroll. If you’re not paying yourself a market-based wage as the owner of your business, then it may be time to start talking about Chapter 11 as a tool.

What’s one action you can challenge our audience to take this week based on your new book?

“The challenge I would put in front of the audience would be to take on something that you feel is greater than what you can accomplish, and in particular outside of your business life.”

Again, that’s the story of the book: my own personal challenge of completing an Ironman triathlon.

I’m not suggesting that’s the right answer for everybody, but pick an activity outside of what you deal with in your professional life and you’ll start to experience a much broader perspective.

I would love for someone to finish listening to this podcast or finish reading the book and say, “You know what? This has been on the top of my mind for a long, long time. I just haven’t had the time or the courage to take it on. I’m going to take it on. I’m going to commit to doing it.”

Because having a goal outside of your professional life really gives you that feeling of being productive and positive and a sense of accomplishment when things might not be going so well at work.