Rob Turns to Bankruptcy in Hopes of Saving His Club

Rob Bishop Headshot
[Illustration by Arnel Reynon]
[Illustration by Arnel Reynon]

It's April 2016. My business partner has left the business and I've taken over as managing partner. That's a fancy term for the guy stuck with all the problems. Over the past few years, the financial position of my company deteriorated to the point we might actually go out of business — something that had previously been unthinkable.

The bank account was overdrawn. We were at least 30 days behind with every vendor and at least 60 days behind with most. We were years behind on our property taxes, and the local tax bureau was on the brink of seizing and selling our property in a sheriff sale. We also owed the IRS and the state back taxes.

We had placed a huge amount of debt (including cash advances, our equipment leases and 20 credit cards) with a debt settlement firm. We had advanced ourselves our receivables (membership dues) 30 days out, and we had seemingly borrowed from everyone we could borrow from.

I wish I could say that I attacked the problems and one by one systematically found a way to keep us going. But that would be a lie. I was in a total state of shock and had no idea what to do. I once read an article about how Special Forces soldiers survive being attacked under seemingly insurmountable odds. It said that they are trained to assess each threat, decide which is the most imminent and then counter each threat in order. I'm certainly no Navy SEAL, but this is the strategy we had to employ. What is most likely to put us out of business first?

'Being in bankruptcy'
A friend referred me to an accountant he said I could trust. The accountant listened to what I told him and simply said, "You have no options other than bankruptcy." I left his office, picked up the phone and made an appointment to see Phil, a well-respected bankruptcy attorney.

My hands were actually shaking as I filled out a brief questionnaire in his office. I knew nothing about bankruptcy. I figured it meant we were going out of business.

For the next two and a half years, Phil functioned as an attorney for the business and advisor to me, and as a personal friend. He explained that by placing the company in Chapter 11, the court was going to protect us while giving me time to get the business back on the right track. It also meant we'd be given a payment plan to pay back everything we owed — 100 percent — over 10 years. The bankruptcy would force the local tax bureau to allow us to pay the back taxes over time and prevent the increasingly adversarial mortgage company from foreclosing.

The low point for me was having to sit in a room with the U.S. Trustee in charge of our bankruptcy case and answer embarrassing questions about how we got to this point and whether or not I thought I could really help the business recover. The trustee has to believe you have a realistic chance to save the business before he will recommend bankruptcy and the protections that come with it.

As part of "being in bankruptcy," I have to submit monthly accounting reports to the trustee's office that show I am current with all of our financial obligations. If we can't pay our bills, we will be liquidated by the court. Not being an accountant, and not having the money to pay an accountant to do these reports, it takes me hours each month to get this done. Then, in addition to paying Phil to represent us, we also have to pay the trustee thousands of dollars per quarter to review the reports I'm sending in.

Bankruptcy, it turns out, is hugely expensive.

Briefing employees, vendors
Between running to and from my lawyer's office and bankruptcy court, I also had to figure out how to make the business profitable again. The first thing I did was to meet with my managers — all of whom had been with me for between five and 20 years. I laid everything on the table for them: We owed hundreds of thousands of dollars. There was nothing in the bank. I was placing us in bankruptcy.

"We have only one shot at this," I told them. "We need to work together to try to turn the business around without our problems going public. If word leaks, people will never join the club." I gave them all the option to walk away. If they stayed, I warned them there will be no complaining about the finances, about each other, about how we will have to do everything the hard way. Everyone agreed to stay.

Next, I met with or called everyone to whom we owed money. Some vendors had been with us for 20 years. It was embarrassing, but I had to be honest. The plan called for us to repay everyone — eventually. I explained that I wanted to continue to do business with all of them and that we would be obligated to pay all current invoices on time with repayment of previous debts to be determined by the court. Almost every single vendor stayed with us.

Then I had to stop the bleeding. I closed our smaller club. It never fully recovered from the recession and wasn't making money, so it had to go. I met with the staff and watched as some teared up with the news that we were closing. They said they weren't upset about losing their jobs; they were upset because they loved working there.

Our finances were now slightly more stable, but we needed to increase revenue if we were going to survive. Thankfully, a friend introduced me to Maria Turco. Just as I relied on Phil to guide me through the legal aspects of saving the business, I relied on Maria to guide me through restructuring day-to-day operations.

Indescribable stress
Throughout the end of 2016 and all during 2017, the level of stress was hard to describe. I worked seven days a week — no days off, no vacations. Even when I wasn't at work, I couldn't stop thinking about work. How much money was in the bank? How much did we make that day? What bills were coming due? Would there be enough money to make payroll? Would there be enough to pay myself?

I cut my salary, even as I was trying to learn the ins and outs of bankruptcy and basic accounting. I couldn't sleep. I lost my appetite and 20 pounds.

I was often asked if I hated my business partner for what happened. My answer was always no. It's not that I wasn't angry at times, but I was focused more on what we had to do to make it through another day, another week, another month. I didn't have time to look back.

We were like brothers — friends since we were teenagers. I wasn't blameless in this. I took zero interest in the finances and didn't help in any meaningful way. And he never told me no. If I needed a raise, he gave it to me.

My own stress level gave me insight into what he may have gone through toward the end. He needed money to live the kind of life he wanted to have with his new wife. He tapped a credit card and then another and then another. And when the club had one bad year, it all fell apart. He must have become desperate — trying anything and everything to keep it going. When I showed the books to Phil, he summed it up best. "There are no discernible accounting practices in place."

In late 2017, I began to make our first debt payments under the bankruptcy terms. If all went well, we would be discharged from bankruptcy in a few months. I thought maybe, just maybe, there was a light at the end of this long tunnel. But I was wrong.

Next month: The only remaining options — sell or close

This article originally appeared in the May 2019 issue of Athletic Business with the title "Obituary Part 2: Seeking hope through bankruptcy." Athletic Business is a free magazine for professionals in the athletic, fitness and recreation industry. Click here to subscribe.


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