Preserving Relationships When Defaulting

Business owners hate to break their word. I hear this all the time. Preserving They hate to disappoint their long-term business associates, long-term vendors who are part of the “family”, and their creditors, many of whom are considered friends. I understand, I get it.

Preserving Just today:

I spoke with a small business owner deeply underwater yet wanting to protect his relationship with his banker friend. He wanted to figure out how to pay him in full despite the fact that the real estate was many hundreds of thousands of dollars underwater. He said he “valued the relationship and wanted to protect it and therefore pay the bank everything they were owed.” What could he possibly have been thinking?

His business is massively depress, he is in default and revenues are down over 70%. He is in default on many matters but not with his bank. We were discussing our workout strategy and I asked him how could he possibly pay the bank and why would he even consider such an act of lunacy?

He couldn’t do it:

Without defaulting on every other obligation as he was massively underwater, so what’s the point? The fact that he could not refinance for that amount, or sell the real estate for anywhere near what was owed didn’t seem to enter his mind. The fact that the property is no longer worth even close to the debt didn’t seem to bother him and the fact that this was an impossible self-destructive strategy was irrelevant to Preserving.

He simply wanted to protect his friend and the bank “to preserve his relationship.” Not sure from what, it is not as if it is coming out of his banker’s pocket, but somehow this borrower felt it would damage the relationship if he did not pay up and stay current. Protecting his lender was apparently more important than protecting himself and his business, more important than his own survival. Wow!

This is a successful long-term businessman, who is not thinking clearly and is controlling his emotions.

Here is how you protect this relationship:

This is honorable. The recession is no one’s personal responsibility. No one person caused it, we all know this. If the banker was truly his friend he would clearly understand that such a self-sacrificial move is nothing short of a mistake born of nonsensical emotion. In fact, his friend the friendly banker should be telling him to do what is necessary for his own survival. That is, if he is truly a Preserving.

I witness it a thousand times with vendors, banks, unnecessary payroll. Keeping employees on that should let go. All because you care about people. Unfortunately, this emotion has no place when fighting for business survival.

All that will Preserving:

In the end is that your business will fail and everyone you were trying to protect will hurt anyway. Your obligation and responsibility is to keep your business going but cut your losses and reduce your overhead so you can survive and save those that are fundamentally necessary, yourself included.

Enough with the gallant, emotional, unrealistic, self-defeating, emotional decisions. Protect yourself and those you are responsible for, that is your mission. Those that truly matter will understand.

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