Chapter # 15
Succession Planning & Strategies
for Harvesting & Ending the
Venture
by Shepherd Hisrich, Peters
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Nudrat Rehman
Qudsia Zafar
Jamila Aziz
Erum Mumtaz
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Nudrat Rehman
Roll# 07-47
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Exit strategy
includes;
► Private sale of stock
► Succession by a family/non family member
► Merger with other company
► Or liquidation of the company
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Succession planning Tips
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Estimate firms value or hire a consultant.
Evaluate potential successors on their merit.
If family members are being considered, make sure that they have skills &
motivation.
Provide a transition period so that the successor can learn the business.
Consider the options such as Employee Stock Option Plan (ESOP) for
management succession.
Set a date for completion of the transition.
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Transfer to family members
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The role of the owner in the transition stage: will he/she continue
to work full time?/half time?
Family dynamics
Annual Income
Current business environment during transition
Treatment of employees
Tax consequences
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Transfer to non-family members
The entrepreneur has 3 choices;
► Train a key employee, retain some equity
► Retain control and hire a manager
► Sell the business outright
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Reasons for these 3 choices
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Employee experience minimizes transitional problems.
If the business has been in the family for sometime & the
succession to a family member may become more likely in
future, the entrepreneur may hire a manager to run the business.
If you are making a partnership, everything will be
predetermined in the agreement.
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Options for selling the business
Direct sale
Condition 1;
► The entrepreneur wants to move on to some new endeavor or
thinks to retire.
Condition 2;
► The entrepreneur does not want to sell the business immediately,
and wants to improve the firm’s performance, in this case there
are many strategies to improve firm’s performance, such as;
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A business can be more valuable if it is focused on a narrow, well
defined segment.
Costs under control & focus on higher profits & margins.
Get all financial statements in order, including budgets.
Prepare a documentation
Up-to-date equipment
Maintain a good management team, allow them to have a dayday contact with customers.
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Employee Stock Option
Plan(ESOP)
A two to three year plan to sell the
business to employees.
Builds employee stock ownership trust,
that borrows the money against future
profits. the borrowed money then buys
the owner’s shares.
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Qudsia Zafar
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Option for selling
business
Direct sale
Employee stock option plan
Management buyout
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Option for selling the business
► Management
buyout
 To sell or transfer the venture to loyal,key employees
►Usually involve a direct sale of the venture for
predetermines price.
►Selling the venture would be to the use stock as the
method of transfer.
►Selling business are through a public offering or even
a merger with another business
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Bankruptcy
► is
legally impairment ability of an individual
or organization to pay it’s creditors
► Creditors may file a bankruptcy petition
against a business or corporate debtor in an
effort to recoup a portion of what they are
owned in restructuring.
► Bankruptcy may always not mean the end
of the business.
► Provide entrepreneur opportunity to
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reorganize the busniess.
► Failure
is not uncommon in many new
ventures,specially in the light of the poor
global economic environment.
► About half of all new start –ups fail in their
first years.
► Important to understand issues involved in
bankruptcy.
► Liquidation and reorganizing are most
common type of bankruptcy.
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► Liquidation
 Company is part to end and assets and property
redistributed.
►Requires
the venture to liquidate, either voluntarily
(decision to file for bankruptcy) or involuntarily
(petition of bankruptcy filed by creditors without
consent of entrepreneur).
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► Reorganization
 Prepare new business plan and then with time
and achieve of new goals, to return to normal
business operations.
 Alternative to bankruptcy.
 Court try to give venture chance to pay it’s
debit, when a venture has a cash flow problem
and creditors being pressure the firm with
lawsuits.
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►A
major creditor any party who has an
interest, or a group of creditors will usually
present the case to the court.
► Plan for reorganizing will be prepared to
indicate how business will be turned around.
► Plan divide the debt and ownership interest
into two groups,those who will be affected
by the plan and those who will not.
► Then specify whose interest will be affected
and how payments will be made.
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► The
decisions made in the organization plan
generally reflect one ore combination of
these.
►extension
►Substitution
►Composition
settlement
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Jamila
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Surviving Bankruptcy
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Understand completely how the protection against creditor
works and what is necessary to keep it in place,
If there is any litigation in existence, transfer it to the
bankruptcy court, which may be a more favorable forum
for the entrepreneur.
Focus efforts on preparing a realistic financial
reorganization plan
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Surviving Bankruptcy
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Understand completely how the protection against creditor
works and what is necessary to keep it in place,
If there is any litigation in existence, transfer it to the
bankruptcy court, which may be a more favorable forum
for the entrepreneur.
Focus efforts on preparing a realistic financial
reorganization plan
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Strategy during reorganization
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The entrepreneur can speed up the process by taking the
initiative in preparing a plan, selling the plan to secured
creditors, communicating with groups of creditors, and not
writing checks that cannot be covered.
The key to enhancing the bankruptcy process is keeping
creditors abreast of how the business is doing and
stressing the significance of their support during process.
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Keeping the venture going
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Avoid excess optimism when the business appears ti be
successful.
Always prepare good marketing plans with clear objectives.
Make good cash projections and avoid capitalization.
Keep abreast of the marketplace.
Identify points that can put the business in jeopardy
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Iram Mumtaz
roll no 24
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Sings of bankruptcy
Management of the finances affairs become lax,
there is tendency to do anything to generate
cash such as reducing pricing or releasing
important personnel such as sales
representatives
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► Directors
cannot document or explain
major transactions
► Customers
are given large discounts to
enhance payments because of poor cash
flow
► Contracts
are accepted below standard
amounts to generate cash
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► Banks
request subordination of its loan
► Important
► Material
personnel leave the company
to meet orders are lacking
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► Payroll
taxes are not paid
► Suppliers
demand payment in cash
► Customers
complaint regarding service and
product quality increase
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Starting over
► Bankruptcy
do not have to be the end for
the entrepreneur
► Gail Borden said:
“I tried and failed, and I tried again
and succeeded”
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► Other
famous Entrepreneur who achieves
success after several time failure
► Rowland Hussy
► Ron Berger
► Thomas Edison
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The reality of failure
► Unfortunately,
failures does happen, but it is
not are able to successfully turn failure into
success.
► there
are some important consideration that
should be mentioned if failure occur.
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First reality of failure
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Entrepreneur should consult with his family it is difficult for
entrepreneur to deal with bankruptcy also for spouses
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Problem occur because spouses have no control over the
ventures operations, as a result he is not be aware of any
bankruptcy threats
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Thus the entrepreneurship should sit with his spouses and
discuss what is happening. this this discussion will reduce
the stress of dealing with bankruptcy.
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Second reality of failure
► Entrepreneur
should seek outsides
assistance from professionals, friends and
business associate.
► Professional support is also available from
small business administration (SBA), senior
corps of retired executives (SCORE) ,and
small business development centre.
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Third reality of failure
► It
is good to not try to hang on a venture
that will continuously drain resources if the
end is inevitable.
► To
solve this, it s wise to set a time frame, if
the venture is not completed in a given time
frame ,to simply end the venture
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Business turn arounds
► During
a business life cycle entrepreneur will face
adversity because of external factors (economy;
competition; changes in customer needs;
technology) ,or the adversity may be self inflicted
(due to poor management).
► The severity adversity of leads to bankruptcy
► There is a need to turnaround our business
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