Being Bankrupt
Every end is a beginning if you don't let it kill you
It’s my intention to publish this newsletter weekly-ish, but this one jammed me up needing to find its way out into the world before I could move on. The essay below wasn’t an easy one for me to edit. I questioned what was enough or too much to share, and at one point I even wondered if I should run it by my lawyer. I opted instead to trust what is sometimes the best editor—time.
A small business-owning friend once shared that certain newsletters should include a disclaimer that you may want to read in private in case you need to cry it out a bit afterwards. Well, friends, this might be one of those times, because I’m about to get into it.
All things considered, I am now well. If you compare my mental and physical state of being to this time one year ago, I have recovered greatly since taking the terrifying step of closing my business. This decision was made in part as a desperate effort to remove the root cause of many symptoms, as prolonged exposure to the extreme stress of being a solo owner-operator had wreaked havoc on my being.
However, there is some damage that cannot be undone. Like the arthritis that now plagues the joints of my feet and hands from a childhood spent in dance studios and a decade of adulthood spent hunched over cut tables, standing for hours on end on concrete floors, often in cold rooms. And then there is my personal bankruptcy, which cost me the credit history I earned from working and saving to pay off many tens of thousands of dollars of student loans and foolish credit card debt I accumulated by my mid-twenties. No amount of rest will lessen these injuries to my bones or my bankability.
My credit is gone, and my financial past has been wiped out. I am both damaged and fresh, starting from scratch at the age of 44. I am told that seven years from now it’ll be like it never happened, which coincidentally is the same amount of time I operated Primal Supply Meats.
As a small business owner, it is an all-too-common thing to sign a personal guarantee—a promise that you as an individual will pay the debt if your business is unable to. For folks who do not have access to private capital, which is my experience and that of the majority of truly small-business owners, this practice has become a standard requirement to secure commercial loans and leases, and was required to receive certain pandemic-related loans. Chances are the local restaurant or boutique shop that you love only exists because the owner was willing to put their house on the line for it.
I’m still fumbling with my own recollection of when I made the first guarantee and whether I really knew what I was doing. Did I understand the risk I was assuming? This was an irreversible step of independently assuming the burden of my business’s future. From that point on, success was not only a vision, but also a responsibility.
Was I advised on this? Sure, I was. I paid a good sum of money to my trusted attorney and an experienced CFO, both of whom I engaged to assist me in planning for and achieving growth. My lawyer told me cautionary tales of other clients’ businesses for which all did not go as planned. It was a “this could happen to you” warning as I weighed the risk. At the time, my response was “good to know, but I don’t think that will happen to me”. Of course I have mentally flogged my past self for my naive optimism. It has also been reinforced to me by others when I’ve confessed my shame that optimism is a necessary trait for an entrepreneur, and not something to look back on and feel some sort of failure about.
The universe dealt me a few rotten hands I didn’t see coming, and my worldview and threshold for risk tolerance have changed since then. Would I do things differently if I could go back in time? Probably not, for fear of the butterfly effect possibility that I would not have had a positive impact on my community and local food system, or gained the experiences I now value. Would I come to the same conclusion if I was faced with these decisions today? Absolutely not.
When Primal Supply took on its first commercial loan, I was the owner of a two year old business, and despite the fact it was fast-tracking to several million dollars in annual revenue, I had bootstrapped it from almost nothing, and Primal Supply did not have enough credit history and/or assets to use as equity. My financial advisor, who had seen this scenario many times before, told me in response to the personal guarantee that was required, “it’s what you gotta do”. There was no other way to obtain the loan or, as I would soon also learn, to close on a commercial lease.
I remember there being moments of intense doubt, often prompting sleepless nights, when faced with ominous contracts and the impending action of actually signing on the line. I kept doubting, is this the best path? Is this really the only option?
Around that time, I had a conversation with a colleague who owned a small business that was years ahead of mine in terms of being established in both the eyes of the public and the bank. Behind the scenes, he and his partners were still growing their business and feeling the pains. They were considering an additional location, and with an air of lightness, he told me this deal would require yet another personal guarantee. They had signed so many of them that the risk, or should I say threat, felt meaningless. He asked in jest, “If something happens to the business, are all the creditors going to get in line in front of our houses and wait their turn?” This was oddly reassuring to me at the time, endorsing the sentiment of “it’s what you gotta do”. If everybody does it, how bad could it be?
In order to close the loan, the lender required my husband and I to go into their office with a notary and sign a lien on our home. This was no casual guarantee. Brad was not a partner in my business, however we owned our home together, and this lender required us to put it up as collateral. If I failed to make payments and defaulted, they would come for our house. This was a fact, and at the time I still believed “that won’t happen to me”.
Over the next year, that capital went towards building a production headquarters. This was a much needed infrastructure investment, as my growing operation was quite literally bursting at the seams in the facility Primal Supply had been subletting from another business. The space was used to process and store the meat we bought from local farmers to sell to our customers, and it was intended to be the forever home for my business.
What I experienced next is a tale that is unfortunately common. My landlord didn’t make good on building and preparing the space as he had promised in our lease agreement. I had to take pricey legal action, and was eventually passed the keys to continue the build out on top of the poor foundation they hastily constructed. Despite the best efforts of the contractor I engaged, we were delayed and went over budget. So when the work was finally completed and my team relocated operations to the new facility, the free-rent period I was counting on had burned up. Full rent kicked in as we opened a new retail outpost in a “developing” neighborhood, and in the coming months sales did not meet my goals. Soon after, the business fell into its first ever period of losses and financial stress.
Remember, I had signed that guarantee with a lien on my home, so at any point when there wasn’t enough money in the bank account to pay all of the business’s operational expenses such as rent, payroll, purchasing, and the thousands of dollars per month in loan repayment and interest I had agreed to, something had to go, and that was my salary. Despite this, I couldn’t just quit my job because it didn’t pay me. I was the sole-owner operator of a business functioning seven days a week.
By the way, as I said earlier, my story is not uncommon. It is just not something anyone talks about. The unspoken rule is that if you’re not crushing it, you sure as hell better pretend you are.
That stressful transition year of trying to scale a young business into something built to grow took place in 2019. The next year, we would experience disruptions to the long term plans I had laid when the COVID-19 pandemic shuttered the world. Just as Primal Supply lost all of its restaurant customers to closures (which accounted for about half of the business’s revenue at the time), like other grocers and food businesses, it would be deemed “essential”. We experienced a period of record high sales before eventually setting into the “post” pandemic sluggish economy that in no way resembled what all my plans and projections were founded on.
My team and I worked tirelessly to chase our vision for growth, and while we thrived in many ways, unfortunately those visions did not become realities when it came to growing revenue or profits. Instead, we got slapped by inflation and an unforeseen period of staff turnover that brought in a new work force demanding more in compensation than I had modeled for. Everyone was struggling, and my customers could only bear so many price increases at the expense of my bottom line.
And so I dug in deeper. I worked to obtain a large grant from the USDA1 that helped sustain operations. Once I had funds guaranteed from the grant, I considered another loan, appropriately titled the “Economic Injury Disaster Loan”, to pay past-due bills to farmers who had generously allowed Primal Supply to extend payment terms based on the trust of our relationships.
My decision matrix at that time looked like this: Without a second loan, I could continue to operate the business, managing limited cash with the help of the farmers who had sold us products on extended credit, giving me more time to pay the bills. And if we could grow, we could catch up. But if anything happened to destabilize the business again, like failure of our refrigeration equipment or another pandemic, we would go under and with us would be all those open invoices—most likely resulting in the failure of those family farms as well.
The other option was to take the loan, pay back the farmers, and carry on doing business with some cash in the bank and another debt obligation that was deferred for two and a half years. It would give me more time to recover. However, if the company didn’t eventually grow to afford the cost of the additional repayments, I could still be facing the option of closure, and personal bankruptcy would be the only way to absolve the debt I guaranteed. I saw my choices this way:
If my business fails and takes down family farms that trusted me in the process, I will never sleep well again. If my business fails and I alone suffer, losing my credit history and financial independence for a period of time, I’ll sleep OK. I’ll get through it.
Thankfully, Primal Supply had achieved some scale and amassed assets in the years that followed that first commercial loan, allowing me to consolidate the company’s original debt into a lower interest loan that no longer had a lien on my house. But I was still required to sign a personal guarantee for each of the new loans. By this time, the risk I was exposing myself to was a lot more real. I knew the potential for disaster.
Those early years of hopeful invincibility were long gone. I was no longer blissfully risk tolerant. This time I knew there was a chance that capitalistic failure and bankruptcy were actual possibilities. And yet I believed in the plans I was envisioning and mapping that would lead the business out of the previous period of volatility and loss. I was willfully determined to make it work and felt it was my responsibility to stay the course, so I tried like hell for another year and a half until I finally admitted that the burden of all the debt was too heavy. The path to a sustainable future was dark and uncertain. Personally, I was lost, I was tired, and I was done. I was ready to accept my fate.
Following the eventual closure of my business, many months of dread, and extraordinary amounts of paperwork, the proceeding that recently formalized my bankrupt status was unceremonious. An intangible door closed behind me after a legal proceeding over Zoom.
I shot my shot and I lost. But now I can now carry on. I can also now share this experience because I’ve already lost everything I built and then some, so I have nothing left to lose.
I doubt I’ll ever regain my earlier confidence when it comes to risk tolerance and entrepreneurship. Mostly, I just try not to be too cynical and advise my small-business-owning friends to avoid signing personal guarantees. I hope for a future in which local economies can thrive, yet this will take the investment and support of our communities. Individually guaranteeing debt on a business scale is far too heavy of a load for us to expect the owners of the businesses that serve us to carry on their own.
And just because everyone does it doesn’t make it OK. Fetishizing entrepreneurship normalizes this practice for owners whose backs our local economies are built on. Had I not had a husband (and the trust of our twenty-year relationship) who contributes income to our household, and had our house not been protected from seizure by the fact that we purchased it as a married couple before I started my business, of which my husband was not an owner, I would have faced the impossible fate of losing everything. If that had been my choice, I might have continued to work myself into the ground trying to save my business, despite the unlikely prospects for a turnaround. It is not inconceivable to imagine I would have reached a point where I believed there was no way out. My heart breaks for anyone who has gone that far alone.
I’m not sure that I have a conclusion or even a goal for sharing this, other than the fact that I know I’m not alone and I believe my experiences would have been a hell of a lot less frightening if I had been able to talk to more people about it at the time. If only there was less shame associated with this type of “failure” that prompts most business-owners to hide their struggles. I’ll just go ahead and file this newsletter under “shit we don’t talk about, and certainly should”. The more you know, ya know?
What I’m Loving and Maybe You Will Too
This article about Why Billie Eilish Insists on Sustainability In Her Career is a great read with a sentiment about overcoming cynicism that I can relate to. I have a lot of admiration for Eilish and her mother, whose efforts are an inspiring model for affecting change in a massive industry.
A conversation between Knopf editors Lexy Bloom (a Philly native) and Jenny Jackson about Jackson’s new bestselling novel Pineapple Street, that I was lucky to be in attendance for at the Free Library of Philadelphia, turned out to be a fascinating craft talk. You can watch the interview, or listen to the podcast, for a deep dive about the relationship between writer and editor in the process of bringing great books to life.
The new Waxahatchee album is so gorgeous it haunts me. Seriously, the record sticks in my head with every listen, just begging for another. Tigers Blood has been on repeat in my household since its release a few weeks back.
Thanks for reading and just being here.
In gratitude,
Heather
PS. If the topic of this newsletter resonated with you, I recommend you read “Why (some of us) in brick and mortar are uniquely f-ed right now” by Katherine Raz of
. It’s an excellent piece from the point of view of a small business owner who is still in the fight and talking about it.Throughout the lifetime of Primal Supply I would manage to secure over a million dollars in federal grants to subsidize operations. Add “grant writing” to the list of skills I acquired at the School of Hard Knocks. The business never would have never made it so far without this funding.
I can relate to so much of this, including the timeline and multiple hits to the business. Most importantly the feeling that you can’t give up because so much is on the line. We launched a new product in 2019 that we put significant investment in, including selling our house. We took most of the money the government would give us during the pandemic, but the business just hasn’t been able to overcome the debt. We’re still pushing forward but mostly because we don’t know what else to do. My husband and I own the business together and there isn’t any home to take, but we can’t imagine what bankruptcy would look like because of those personal guarantees or who the hell would hire us after close to 15 years of working for ourselves. And yet every time I talk to a fellow entrepreneur who would most likely understand I answer the inevitable question “How are things going?” With “We’re still here.” As though that’s a positive thing.
This is required reading for all aspiring entrepreneurs. Really, why is entrepeneurship so fetishized?! So much of small business ownership is that feeling of "I must go on" with the unbelievable financial pressures and moral obligations... it can be suffocating. Thanks for sharing it all.