J0692 - Entrepreneurship

Ending The Venture

Sesi 11

J0692 - Entrepreneurship

Agenda

• Management of Succession

• Other Exit Barrier

J0692 - Entrepreneurship

Bankruptcy’s LessonsA. Overextension To MarketsB. Protects From Creditors Not

CompetitorsC. Entrepreneur = BusinessD. Recognize Failure Too LateE. 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 SurvivalBargaining Chip- Restructure And ReorganizeFile Before Failure Of Cash Or RevenueChapter 11- Only If Chance Of RecoveryExamination Of Transactions For FraudMaintain Good RecordsUnderstand CompletelyTransfer Litigation To Bankruptcy CourtRealistic 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 DuringReorganization

• Prepare Plan

• Sell Plan

• Communicate

• No Checks That Can’t Be Covered

J0692 - Entrepreneurship

Reducing Risk Of Failure

Avoid Excess OptimismPrepare Good Marketing PlanMake Good Cash ProjectionsKeep Abreast Of MarketIdentify 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