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Q&A: If Your Program Is So Good, Why Did You Go Bankrupt?

rf question answerThis really is the elephant in the room, isn’t it?

If my law practice was so successful and I was making more than a million dollars a year in it and only working a few days a week, why in the world did I go bankrupt?

I’m by no means a person of ‘victim’ mentality, but the facts are the facts and I’m going to share them with you. I’m going to be totally transparent with you (as I always am, whatever the haters say. 😉 )

It’s a long story, so settle in and keep an open mind because there are actually many lessons everyone can learn about how to not go bankrupt and about how to build a great life and business, even if you do.

Before I dive in, I’ll just say this. If I had played it safe and stayed a practicing lawyer in my hometown community of Redondo Beach, I’d be rollin’ in the dough right now, a pillar of the community, loved by all.

I’ve often wondered myself why I didn’t I make the choice to keep serving clients one to one, hanging out at the beach or on our walk street, doing yoga four times a week, educating my community 1-2x/month about legal planning and legacy, hosting our annual Christmas shindig and the kids’ birthday parties in my decked out office garden, bringing in more than a million a year and keeping about a third of that myself…

That all sounds really nice, doesn’t it? It was. A nice, sweet life. One that was destined for someone else, not me. It was only a stop along my personal life path.

Alas, I believed (and still do) that I am here to make a huge mark on the world. A mark I believed I could only make if I expanded beyond the one to one clients, if I had the freedom to travel, the ability to speak at conferences, write books, create podcasts and appear on TV.

I had mastered the art of attracting, engaging, and serving (in a whole new way) estate and business planning clients. But it was no longer exciting to me once I had mastered it. That’s just my nature. I get bored if I’m not pushing the edges when it comes to what’s possible. I only took the hardest classes in law school and still graduated first in my class, from Georgetown Law.

In some ways it makes sense that I would build my practice into a million-dollar-a-year revenue generating business, in just three years, knowing nothing about business and then walk away from it to end up filing bankruptcy.

But there’s quite a lot between that happened along the way and I want to give you the whole story, so stay with me.

Going Against The Grain: It’s My Nature

The first time I tried to sell my practice was in mid to late 2007. I had just launched the Client Engagement System — my second information product, but my first to succeed — to a raging success and quickly thereafter I had begun to offer the Personal Family Lawyer training for the first time ever.

I was running the Family Wealth Planning Institute and my law practice, Martin Neely & Associates. I had hit a million in revenue at Martin Neely & Associates the year before, for the first time. And I was now able to go into the office just a few days a week with a staff and of-counsel attorneys doing the work.

But I knew something was amiss. While I knew how to market a law practice, and sell legal services, and serve clients in a new way that left them raving about our services, I didn’t know how to run a law office, or any kind of business, really — and now I had two.

rf tax-1501475I had no idea how to manage the financials. 2007 was the year I first went into serious debt when I had to borrow $100,000 to pay my unexpected tax bill from 2006, when I first hit a million and wasn’t prepared to handle things like financial systems and taxes.

On top of that, 2007 was also the year I was audited for my 2005 tax return, when I had still been a sole proprietor, which makes you 7-9 times more likely to be audited. But I didn’t know that, then. The people advising me weren’t well-informed, I guess, because they didn’t tell me that. Instead, I got to learn the hard way. (Today, I teach those lessons to other entrepreneurs as part of my LIFT Foundation System and teach other lawyers how to better help their own clients and themselves with it too.)

At that time I had no idea how to hire and train staff properly. I had no idea how to document policies and procedures.

I knew how to get shit done, inspire team members to follow my lead (even if they hated me as they did it), and pull off feats they never imagined possible.

While Steve Jobs was able to build those kinds of abilities into Apple and the iPhone, I simply I couldn’t maintain it. My insides were rotting. Knowing that I was not being the kind of woman I wanted to be in my role as business owner was simply too painful. I had to make a shift. I just had no idea what that meant.

I would find myself daydreaming frequently about writing a book, imagining myself with a call-in radio/tv show, and a popular blog or column. I believed that if I could create those things, my life would be way better. (What I didn’t realize at the time is that to do those things, I’d have to become the leader I didn’t want to be.)

While I didn’t fully get the leadership piece and what it would take to step into that, I did believe that to impact at the level I wanted to impact, I would need to step into a business model that would make it so I didn’t have to go into my law office, ever.

And a model that would ensure I earned my money by reaching large numbers of people, rather than serving one to one.

At the time, I really couldn’t see how I could do both. I needed to be on the road, making TV appearances, going to events, I was on my way to truly “successful” — it’s been a continuous quest for me.

So I decided to sell my law practice.

Now, knowing me (or getting to know me), you probably know I don’t do anything the conventional way. And if you don’t know that about me yet, you will. Keep reading.

The First Big Mistake: How I Got Sued

Since I didn’t know how to sell a law practice and I had generated a big list of lawyers who were eager to work with me, I decided that the best way to sell my law practice would be to have a contest!

It all seemed to be going perfectly. I sent details of the contest to buy my law practice and work closely with me to take things over to my whole list. About 20 lawyers applied.

I carefully sifted through and sorted the applications. It was so exciting. It was really happening.

I had no idea what I was doing, but that didn’t matter because I was figuring it out as I went along.

I didn’t think to hire a business broker.

I didn’t think to upgrade my accountant relationship to someone who had experience buying or selling businesses.

I thought, “I can figure it out”, because I always had up until then.

But what I had forgotten is that every time I had figured it out in the past, I had asked for and received guidance. I’d hired this coach, that mentor, that person who had succeeded already doing what I wanted to do.

This time? Nope. Actually, I probably thought “my business is too small to be handled professionally. I’m not really worth all that. This isn’t really a big deal.”

Frankly, it was my insecurity and lack of understanding about what I had created and how much of a big deal and awesome thing it was that had me make this error.

When it came to pick my buyer, I made a very, very, very, very bad choice.

I’ll say it plainly. No beating around the bush. I got snookered.

A woman came forward through the contest who had actually worked in my office, previously. She was a lawyer and she had worked with us after my office manager left to provide some HR services and I had always hoped she would want to run the office.

Her step-daughter was a key employee on my team.

Despite the fact that she had left her prior engagement with us without notice, with poor communication and an incomplete job, when she entered the contest, she pulled me in with a story of spiritual awakening, and re-birth.

I’ve always been a sucker for transformation.

She made a strong case and I so wanted it to be true, so I said yes. I turned down the other prospects and moved forward with her.

As soon as we got into the numbers things started to go off the rails. Her accountant never did contact my accountant. I didn’t understand what happened or why things fell apart until about 6 months later when I got into her step-daughters office email account after an incident in the office, and discovered the whole family had it out for me.

To make a long-story short, this team member ended up suing me with this exact same woman I was going to sell to providing pro bono counsel for her (remember, she was my team member’s stepmother). They ended up collecting a 5-figure settlement because I couldn’t afford to fight the lawsuit without the right insurance policy in place to pay for my legal counsel.

To make an even longer story even shorter, I didn’t give up on selling my law practice.

The Second Big Mistake: How I Went Bankrupt

I decided I’d sell my successful practice to a man who I had trained in my Personal Family Lawyer programs, who lived nearby and seemed like a sweet old lawyer who would treat my clients right.

I was oh so wrong. Again.

There were several mistakes I made when I entered into the relationship to sell my law practice.  (I’ll write a whole other piece about that so if you are interested in selling your law practice, you can read it first and avoid the mistakes.)

But since we are making long stories short, I’ll cut to the chase. He bought the practice in the Summer of 2008, paying on an installment plan that largely depended on his continuing bringing in the revenues and success I had handed him. (Sometimes you can give all the training, systems and tools; lead a horse to water but…)

 On December 31st of that year he called me into the office to tell me he was out of money, had fired the marketing director and stopped running the ads a couple of months before and that there were dramatically less calls to the office.

As if that wasn’t enough, he had seriously pissed off a client with a $28,000 account payable on a trust administration, so he wasn’t going to be able to collect on that (I would end up writing off most of that due to his lack of finesse at serving the client).

I was shocked. How could he have run the practice into the ground so quickly? What about the team? Weren’t they running the systems I had put in place? What about the clients, were they being served to my standards?

The answers were all ugly. The team was intact, but leaderless. The clients were not being well served by the buyer and the systems were running, but once he stopped running the marketing campaigns and fired the marketing director, there was little new business coming in the door.  The $9,000 per month in recurring revenue from existing clients on membership simply wasn’t going to cut it to support a million dollar business.

Here’s the kicker: The company still had my name on it.

I had two choices: I could close the firm down that day, let the staff go on the spot, and leave the clients hanging or I could do the right thing and keep the doors open, while not taking on any new clients and get the existing clients notified and served by other lawyers I had trained in the area.

I couldn’t take on any new clients because I knew I wasn’t going to keep serving clients. So I had to move my existing clients to new counsel I trusted who would provide planning to our standards — with regular updating, ensuring assets were owned properly, passing on more than just money and Kids Protection Planning (because most lawyers do none of these things).

Fortunately, I had already started training other lawyers in these methodologies and there were some in and around town who had begun to learn. Now I just had to keep paying my staff while we made the transition. It was an expensive choice, but I couldn’t make any other choice.

I was going to make the best of a bad situation. And I would use my savings and credit to do it.

It cost me $250,000 to keep the doors open for 6 months, pay my staff, inform the clients and transition them as well as I could.

About $100,000 of that came via credit. So now, between the 6-figure tax bill, the lawsuit I settled for 5-figures, and the abrupt closure of the law practice, I was about $250,000 in debt.

And I had more available to invest.

Spending All I Had to Save the Practice

I would ultimately use all of the money I had access to. Once I was already that far in, I had no fear about taking on more debt. I was paying my credit cards on time.

Monthly loan payments were high, but I was making plenty of money to manage it. [Side note: I did not begin as someone fearless about leveraging debt; the first time I filled out a loan app when I was starting my own law practice and ready to have a gorgeous office, I took out the minimum the banker would let me, $50,000. I was full of shame, fear and guilt that I needed to borrow money, back then. Fortunately, I didn’t let that stop me because I never could have built what I did, if I had.]

By 2009, I had built my second million dollar business, this one educating families and attorneys about how to do estate planning for families with young children, plus I had built another 6-figure business training entrepreneurs on legal, insurance, financial and tax systems.

I was also doing a lot of TV, had published the best-selling book on legal planning for parents, was living in a house by the ocean, with my kids in private school. From the outside looking in, I was living the dream.

Except that the dream was turning into my own personal nightmare.

I felt trapped, stifled, and I had lost sight of why I was doing what I was doing.

The first question I began asking myself was “do I even want to serve lawyers?” Many people in the legal community had been downright mean to me and even the one’s I knew were having success with my resources didn’t seem that grateful.

I began to wonder if the legal community was really the right outlet for my talents.

Then, I began to notice how much conflict existed in my life and how I was contributing to that conflict.

Finally, one day I found myself on the soundstage of the Nancy Grace show (I was there to gossip about Tiger Woods divorce) and I reailzed I had become a person I wasn’t proud of being, contributing to the world negative 1,000 at least, by gossiping on public television.

I swore that day I would never do TV again until it was transformational TV and I left the studio resolute.

Within 3 months, we would leave LA for good and move East to Colorado.

I needed to find a path that felt sustainable. And good. And right. And true. And beautiful.

Unfortunately (or fortunately depending on how you look at what I learned from it), I had to let go of everything to find that path.

At this point, I was around $350,000 in debt. On top of the tax bill ($100,000), the lawsuit settlement ($50,000+), and the law practice closing abruptly ($100,000 from credit), I also invested $87,000 in a mastermind (it was $100,000 but I paid in full using credit and got a $13,000 discount for doing so). So I was loaded down.

But, I took on more, because I knew that it was the only hope I had of risk conceptpaying it off.

I could take on more debt and try to create a sustainable business that I could happily keep serving in while earning enough to pay back the debt and support my family + a farm I had purchased when we moved to Colorado, primarily to set up as a business for my kids’ dad.

That business failed within 6 months and I decided I would turn that farm into a co-working/retreat space and community.

I gave a friend of mine from California (who would be the caretaker of the property) my credit card info and said “go to it.”

I stayed focus on running both businesses and trying to be in relationship and be a mom.

$150,000 later, we had a beautiful garden, retreat center, sand volleyball court, two mongolian yurts, and a budding community.

It was beautiful from the outside. But the foundation was seriously cracked.

I hadn’t yet learned my lesson about how important the foundation was. This would be the final straw.

By August of 2011, I had a choice to make.

  • Keep going as I was (working way too much, miserable, not able to get along with anyone on any team because I was so impatient and didn’t like the business model I was in because it was so dependent on me and didn’t seem to serve at the level I truly wanted, but I didn’t know how to create anything else),
  • Figure out a way to get the farm turned into a revenue generating business that can support itself and my family or
  • Move to the farm and cut all expenses and live for a year with no team support, only managing what I can truly manage, focusing on my kids, doing my laundry, groceries and cooking, drive the kids to school, no assistant, just a bare bones team to support the clients that wouldn’t go anywhere even if we told them to leave.

I chose the latter route.

I moved to the farm. The funny part is that I swore up and down when I bought the farm that I would never live there. But maybe some part of me knew I would. Knew I needed to live there, to spend a year taking money off the table and, yes, ultimately to make the decision to file bankruptcy.

One Of The Hardest Decisions, Ever

Now, you can imagine (or maybe you can’t), deciding to go bankrupt was not an easy decision.

I knew I would be giving up so much more than just my credit score. I’d be giving up my reputation. Most famous people who file bankruptcy (other than Trump), I believe did it before they built a name for themselves (Brendon Burchard, Jack Canfield, Walt Disney).

But I already had a brand and an image as a successful lawyer and I was teaching other lawyers who I knew might not trust me as a teacher anymore when they found out about my bankruptcy.

I decided to do it anyway. Why?

Because it was the best of three options:

  1. Negotiate down and pay off the debt.Pros: good for the brand/image (people love debt pay off stories); Cons: would have huge tax bill for portions of loan forgiven, would take a long, long time, would require me to continue to serve under a not ideal business model that was not doing the most good possible for the most people and that was sucking my life force energy.
  2. Do nothing.I could no longer do nothing. The debt payments were sucking my creative energy and requiring me to compromise daily simply to pay them. I compromised my health, my relationship with my kids and I could feel the desire to compromise my ethics and sell things to people I didn’t really think needed them. That was not something I was willing to do, ever.
  3. File bankruptcy.Immediate fresh start, debt is totally clear, no tax bill, fairly easy to rebuild credit, I would learn a huge amount about the process so I can help others make smart decisions about their debt and I would become more relatable to the people I thought I wanted to serve (and still do) — those who don’t believe in themselves because they’ve made poor money choices in the past or have not had good education around money.

In order to qualify to file bankruptcy, I could not earn more than $5,000 per month for a year before. The only way I could afford to live on so little was to move to the farm and stop paying any bills, other than the most essential.

I feel ashamed to say this because so many are living on so much less, but I felt afraid more than a few times that year when I went to the grocery store that I wouldn’t have enough to buy all of what we needed to feed my family.

But with two kids, no money from the ex-husband, and just $5,000 per month, it was tight (I’m sure you know).

That was a year of learning, growth and evolution. Maybe my biggest.
I came to love living the simple life at the farm. There were definitely times I thought I would never make it back from there and that maybe I could (and should) just surrender to a quiet life with kids and simple work

While that sounded nice in one respect, I knew that too was not my path. Sure, it would be comfortable and sweet.  But, it wasn’t what I came here for and I couldn’t just settle in there. Not yet.

So I filed bankruptcy on August 27th, 2011 and I decided to come back from the farm, into the world and continue on my path.

When I asked myself what my next step was on this path and whether it involved me continuing to serve lawyers, I knew it did.

You see a few things happened during my year at the farm.

First and foremost, there was a group of lawyers who had been in my training program since 2007 and they stuck with me through the period of time when I literally had nothing new to give them. I was devolving, not evolving.

And these lawyers happily paid for the work I had already created that they got to use, even though it was not the easiest to access and I was not available to offer any one to one support, as I had been in the past.

They didn’t care. They loved the resources I had created and so they kept paying the company so they could use those resources. I began to realize that I truly had something of value for these lawyers. I wasn’t just a good salesman, as I had feared. They really were benefiting tremendously from the work I had created.

On top of that, when I had moved to Colorado, my close friend, Martha Hartney, was just graduating law school. In fact, I had moved out to Colorado after speaking at Martha’s graduating law school class in Denver law.

And Martha wasn’t sure what area to choose to start her law practice. She was considering possibly being a public guardian or working in the children’s court and I knew that if she did that, she would not end up happy in her work or her life.

She needed to earn a great income to be able to support her kids. She wanted to make a difference in people’s lives. She wanted to work for herself, on her own schedule so she could still be there for her kids, as she had been as a stay at home mom.

I suggested to Martha that she try the Personal Family Lawyer(r)  systems and become an estate planning lawyer for families in her community. She was a no. She was sure she didn’t like estate planning in law school. Thought it was just for old, rich white guys. And it would be dull and boring, she thought.

I persuaded her to just give it a try and see if she liked it because really, would I choose a practice area that was dull or boring? No. And after quite a bit of consideration, she dove in.

Watching Martha try the Personal Family Lawyer systems and fall in love with her practice was a game-changer for me.

Finally, I knew for sure that what I had created was needed in the world. I couldn’t abandon it, it was worthy of my full investment of time and energy.

I would then and there incorporate the New Law Business Model, originally a partnership between me and Martha to create the Estate Planning Bootcamp (showing lawyers the bare minimum they’d need to know to start counseling clients on legal life planning matters). Little by little I rebuilt what I had killed off.

New Law Business Model licensed the resources from the Family Wealth Planning Institute and began the process of updating and upgrading them.
I took everything I had learned and all the mistakes I had made in building the Family Wealth Planning Institute and built the new company on the solid foundation of rock bottom.

I did away with aspects of the business model I didn’t really believe in (such as our area exclusive program — which was unnecessary and only served to embed in a false belief in competition rather than collaboration) and focused on building a company that could help as many lawyers as possible become truly happy and loved serving families and/or small business owners.

Today, that company is back to serving thousands of lawyers.

My bankruptcy is behind me and the lessons I learned about life and business along the way have been absolutely invaluable.

The lawyers (and non-lawyer entrepreneurs) I serve today benefit from those lessons without having to make the same mistakes.

Unfortunately, there are people who judge me for having filed bankruptcy. I’m not sure what to say about that other than that it can serve as a good filter for who I want to work with and who I don’t.

Those that judge me or blindly believe the hate mongers out there without investigating further themselves, miss out on the benefit of the work I’ve created.

Those who are able to see that mistakes are our greatest opportunities to learn and are willing to learn from my mistakes benefit the most.

If you are in this latter group, you can read the results and success stories of the people who have applied my systems, learned from my mistakes and are creating their own success as a result.  And join us… we welcome you into the fold of happy lawyers who are loved by their clients and love what they do.

Want to learn more about creating a practice and life you love?

About the Contributor
Alexis Neely is a bestselling author and has been a frequent guest on numerous network talk shows and news broadcasts. After graduating first in her law school class from Georgetown Law, Alexis clerked for Senior Judge Peter T. Fay on the 11th Circuit Court of Appeals and then began her career at the #1 AmLaw rated firm of Munger, Tolles & Olson. She went on to build her own law practice into a million dollar a year revenue generator within just three years by creating a revolutionary New Law Business Model you’ll hear about on the call. She is a leading expert on teaching lawyers how to attract more clients, engage those clients at higher fees,* and to serve those clients using this completely different law business model. Lawyers using Alexis’ systems report far more happiness, bigger bank accounts, and that they love being lawyers again.

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