“Are you the problem or the solution?”

That was the first question the court-appointed management team asked me, in the weeks after an iconic New York health and fitness brand filed for bankruptcy protection. I was part of its finance leadership. They had every reason to ask.

I had heard the question before. Decades earlier, my school principal told us that history is written by people who survive, not by those who are dead – so never quit, for if you are the problem, you need to find the solution. I did not know then that a bankruptcy court would one day ask me the same thing.

The company came out of bankruptcy in under 3 months, and the brand is still operating today. Life has given me many lessons in 30 years of finance, but few as compressed as those 3 months. Here are the ones I would share with any owner.

A filing buys a window, nothing more

In our case, the pandemic had shut the clubs by government order, and the leases called for no relief when business stopped. When the shutdown orders were lifted, filing for protection was the only way to reopen without any one landlord being able to stop us.

That is what a filing does. It does not fix the business. It buys time and protection to fix it. What you do inside that window is the whole story, and the window is shorter than anyone expects.

Separate the asset from the stewardship

In a crisis, most people defend the past – the decisions that were made, the plan that did not work, the people who were in charge. Courts, lenders and buyers have heard every version of that defense, and they do not believe it.

What they will believe is an honest separation of 2 things: the business itself, and how it was run.

Late in the process, a potential buyer called and asked me to give him 1 reason why his firm should buy us. I said that this company always generates cash. We had mis-used the money it created. But if I were to start the business from scratch, it would still be a business that gives a return on investment.

The next morning they bought the company.

Defend the business. Concede the past. You will be believed.

A plan from finance alone is only arithmetic

A turnaround plan built only inside the finance department is a mathematical iteration. I know how to multiply by 2. The question is what the road map is to get there – which members, which clubs, which costs, with whose help, and by when.

So the projections were built with the whole organization: the people who sold memberships, the managers who ran the clubs, the teams who knew what a member would actually pay. The revenue we showed the court was a number we could defend line by line, and the cost reductions were ones the business could live with.

Say the uncomfortable thing early

During the process, 2 different interim leaders were put forward. Neither had experience of our industry or of a membership business, and I had to say plainly why neither would work. On the Sunday after Thanksgiving, on a call with a potential buyer listening, I had to say that the plan on the table would not hold. The call ended with no end in sight, and liquidation was a real possibility.

It was not comfortable. But a turnaround runs on trust, and trust runs out the first time someone discovers you knew and did not say.

Before it gets this far

There was a window to refinance the company's debt before the pandemic, and it was not taken. By the time the crisis came, the choices had narrowed to 1. Most owners I speak with still have more than 1 choice. A few questions worth asking while that is true:

A - Do you know your cash, week by week, for the next 13 weeks

B - Do you have 1 page that shows who you owe, how much, and when

C - What do your leases, loans and key contracts say happens if revenue stops for 90 days

D - Is there a refinancing or restructuring option open today that may be closed in 6 months

E - Are you the problem, or the solution

If any of these do not have a clear answer, that is the place to start – with your own advisor and, where needed, bankruptcy counsel, long before a court asks the question for you.

A bankruptcy does not end a business. Defending the past does. Period.