Getting Paid To Manage Your Own Workout

Entrepreneurs are predictable. They all respond in the same manner in similar situations.

For example, when cash is tight an entrepreneur forgoes his own paycheck in order to pay the payroll or other necessary bills. Self-sacrifice is the way of the entrepreneur.

When involved in a workout scenario, many different decisions are made, different than what would normally be done had the entrepreneur simply continued to survive. This is another well-developed skill every entrepreneur possesses.

Here is one major change I recommend that comes as a great relief when entering the workout stage – the entrepreneur is entitled to a reasonable paycheck when managing the workout and wind down.

The secured loans are probably in default and thus will not be paid. Other unsecured vendor debt may be ignored, payroll may be drastically reduced leaving adequate cash for a weekly paycheck for the entrepreneur to facilitate the workout for the benefit of both the bank, the secured guarantors and, of course, the borrower. This is always part of my workout strategy and is always acceptable to the bank. If we are doing an orderly liquidation for the benefit of the bank which is part of the overall strategy within my bailout plan, the manager/owner/borrower is entitled to a paycheck and there is adequate cash to support it. In the end, when the workout plan is unfolding, the small business owner is paid to do the job by resources the business generates. This is cash that probably would have gone to the bank but is appropriately allocated for this purpose.

In fact, I frequently discuss the best way to liquidate accounts receivable and clearly the business owner or even the financial officer previously responsible for such collections will do the best job and the bank will do the worst job (if they will do it at all). Thus the bank is typically willing to split the receivables in some negotiated manner such as one third for the business owner, two thirds for the bank.

It is not the end all be all, but it is a nice change as usually the small business owner is stretched to his limits at the point of workout and a little relief can go along way in reducing the short-term pain. Keep this in mind because it’s reasonable and most frequently overlooked as the bank will not suggest it and the entrepreneur would not otherwise know this is possible, let alone appropriate and acceptable.