Ending The Venture
Sesi 11
J0692 - Entrepreneurship
Agenda
• Management of Succession
• Other Exit Barrier
J0692 - Entrepreneurship
Bankruptcy’s Lessons
A. Overextension To Markets
B. Protects From Creditors Not
Competitors
C. Entrepreneur = Business
D. Recognize Failure Too Late
E. Emotionally Painful
J0692 - Entrepreneurship
Reorganization
• Least Severe Alternative- “Breathing Room”
• Cash Flow Problems Can Be Overcome
• Plan Prepared & Approved By Court
–Extension- Postpone Claims
–Substitution- Exchange Something For Debt
–Composition- Prorated Settlement
J0692 - Entrepreneurship
Bankruptcy Survival
Bargaining Chip- Restructure And Reorganize
File Before Failure Of Cash Or Revenue
Chapter 11- Only If Chance Of Recovery
Examination Of Transactions For Fraud
Maintain Good Records
Understand Completely
Transfer Litigation To Bankruptcy Court
Realistic Reorganization Plan
J0692 - Entrepreneurship
Extended Payment
• Budgets Future Income To Outstanding Debt
• Payment Of All Priority Claims
J0692 - Entrepreneurship
Priorities
• Secured Creditors
• Administrative
Expense
• Claims From
Operations
• Wage Claims
• Contributions To
Benefit Plans
• Claims Of Consumer
Creditors
• Taxes
• General Creditors
J0692 - Entrepreneurship
Liquidation
• Voluntary vs. Involuntary
• Involuntary Requirements
–Debts Not Being Paid When
Due (1 – 3 Creditors)
–Custodian Appointed
–Fair Value Of Assets < Debts
(Balance Sheet Test)
J0692 - Entrepreneurship
Bankruptcy Trustee
• Elected By Creditors- Interim Appointed
By Court
• Becomes Owner Of All Nonexempt
Property
• Can Set Aside Petitions
• Transfers Property To Creditor
J0692 - Entrepreneurship
Strategy During
Reorganization
• Prepare Plan
• Sell Plan
• Communicate
• No Checks That Can’t Be Covered
J0692 - Entrepreneurship
Reducing Risk Of Failure
Avoid Excess Optimism
Prepare Good Marketing Plan
Make Good Cash Projections
Keep Abreast Of Market
Identify Business Stress Points
J0692 - Entrepreneurship
Bankruptcy Warning Signs
Financial Management Lax
Inability To
Document/Explain
Transactions
Large Discounts To Speed
Up Cash Flow
Contracts Below Standard
Amounts
Bank Wants Subordination
Key Personnel Leave
Lack Of Materials
Unpaid Taxes
Demand For Cash
Payment
Customer Complaints
Increase
J0692 - Entrepreneurship
Failure Reality
• Consult with Family/Friends
• Seek Outside Assistance
• Drop Venture That Is
Draining Resources
J0692 - Entrepreneurship
Succession Planning Issues
• Senior Management
Committed To Plan
• Well-Defined Job Descriptions
• Open Process
J0692 - Entrepreneurship
Harvesting
• Direct Sale
• Employee Stock Option
–2-3 Year Plan to Sell To Employees
–Create Trust Fund
• Management Buy-Out- Based On
Value Of Goodwill & Asset Appraisal
J0692 - Entrepreneurship