How to Recover from Ruin

A friend of mine has lost a lot of money. He went into business and it was a fine venture, but his business partner pulled the pin after just nine months and that has effectively bankrupted my friend. Today I want to write about recovering from financial loss, but much of what I write is relevant to anyone who has suffered loss of any kind.

The Importance of Contracts and Agreements

Briefly, back to my friend. I’ve written about this before but I can’t stress how important it is that if you go into business with someone, you have a Repurchase Option contract that includes a four-year vesting schedule with a one-year cliff. What does that mean? New businesses often don’t make any money in the first year and usually don’t flourish until the four-year mark. If one partner withdraws their cash within the first year it can destroy the business (as happened with my friend). With a vesting schedule, partners ‘vest’ their shares over four years. No one can withdraw any money from the business until the first anniversary. After one year (the one-year cliff) the partner is given a 25 percent share in the company. Even if there are only two partners, after a year each is only entitled to withdraw 25 percent of the business’s total worth. The other partner also has first option on buying these shares. After the first anniversary, 1/48^th of the remaining shares is released to the partners monthly. Partners can only withdraw half of the capital from the business after four years. Such an arrangement would have saved my friend’s finances, but unfortunately he went into business with no contract with a good friend, who has let him down badly. Now he is basically financially ruined. I’m afraid in business it never pays to be too trusting. If you open up a venture with a friend before investing all your savings, please see a lawyer and draw up a contract for vesting and shares repurchase.

You are Not Alone

Have you ever faced financial ruin? It must be heart-breaking. I’ve faced hard times. I was foolish and believed I would never recover but somehow I was reborn from the ashes. We humans are remarkably resilient. My critics have told me more than once that I’ve blown it and I’m down for the count. But I’m back, so they clearly couldn’t count!

If you have lost all your assets and your lifesavings you will be feeling hopeless. First remember that you are not alone. So many people have been in your shoes. People have lost fortunes on the stock market, through real estate deals, over spending, divorce and illness. Almost 4,000 Australians enter agreements with debtors every quarter, so your situation is anything but unique. Often people who lose huge sums of money are the victim of someone else’s wrong doing, but if you’ve had a huge setback the truth is that how or what caused it no longer matters. You can’t turn back the clock, instead you need to start moving forward.

Move Forward

The most important thing you need to do is stop wallowing in self-pity. Yes, this is a hard lesson but it is the truth. A dear friend of mine died of cancer about four years ago. He became ill and died very quickly. He was a robust character. Before he got sick he listened to my wows, and yes, folks I’ve had bad times in my life. I’ve suffered depression. My friend’s advice was always not to spend too much time feeling sorry for myself, because it achieves nothing! Now, whenever I am feeling down I hear his voice in my head. The truth is I have no right to feel sorry for myself, because I am alive. So if you are newly bankrupt or crushed by debt, I’m still going to say to you don’t spend too much time feeling sorry for yourself because you are alive and too many young and beautiful people have had their lives cut tragically short. Okay, accept reality. Your money has gone and it’s not coming back. Don’t waste time living in the past, because that will only make moving forward so much more difficult. People who study survivors again and again find that survivors do not spend a great deal of time mourning their losses – they have the strength to move on.

Take an Inventory

Once you’ve accepted your reality, you need to take an inventory. What resources do you have left and what are your debts? You need to know everything and face up to everything so you can get a financial plan ready. Once you’ve assessed the situation you need to decide where you go from here. Will you repay your debtors and then open another business? Will you go back to being a wage earner for a while, provided you can find a job? You are not going to want to hear this right now, but so many entrepreneurs say they learnt more from their failures than their successes. Losing a huge amount of money is a hard lesson. Some people go into depression and need counselling and medication to pull themselves out. That is okay, but believe me, good things are ahead of you! You need to decide what your next goals are and then draw up a detailed plan looking at how you intend to achieve your goals. Again, include a time line and set multiple goals.

The Case of Larry King

You would not believe the number of successful people who have come back bigger and stronger than ever after being bankrupt. I was only recently reading about the US radio star, Larry King. He has a fortune of $150 million, but in the 1970s he filed for bankruptcy. In 1972 his business partner accused him of stealing $5,000 from a business venture. Again this is a story of a feud between business partners. The charges were eventually dropped by police but his reputation was in tatters and no radio station would give him a job. By 1978 he was behind with his mortgage and living on credit. He had $350,000 in debt, but finally he had a lucky break. CNN offered him a late-night radio show in Washington. The 'Larry King Live' show went on to run for 25 years and Mr King amassed his fortune, but for eight years his life looked hopeless. He had a failed business venture, lost a close friend and then saw his finances evaporate and he amassed debt, but he never gave up even though it took eight years to turn his situation around. I say to you, no situation is hopeless – keep fighting and eventually you will get back on top!