Ending The Venture

Bankruptcy
Bankruptcy is the inability to discharge all your

debts as they come due

(law) a legal process intended to insure equality among

the creditors of a corporation declared to be insolvent(Someone who has insufficient assets to cover their debts)

Bankruptcys Lessons
A. B.

C.
D. E.

Overextension To Markets Protects From Creditors Not Competitors Entrepreneur = Business Recognize Failure Too Late Emotionally Painful

Strategy During Reorganization

Prepare Plan

Sell Plan
Communicate

No Checks That Cant Be

Covered

Reducing Risk Of Failure

Avoid Excess Optimism Prepare Good Marketing Plan Make Good Cash Projections Keep Abreast Of Market Identify Business Stress Points

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

Failure Reality
Consult with

Family/Friends
Seek Outside Assistance

Drop Venture That Is

Draining Resources

Harvesting the Venture: A Focus on the Future

Harvest Plan
Defines how and when the owners and investors will

realize an actual cash return on their investment.

Reasons for Harvesting
To maintain managerial control and succession for

successful continued operations. To initiate a liquidity event that will generate a significant amount of cash for the investors. An IPO (initial public offering) has become a reality. Most realistic opportunity is sale of the business.

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

Direct Sale
Requires Time & Planning

Buyer Payment Method

Business Broker Business Plan Employment Contract Covenant Not To Compete

Advantages and Disadvantages of Family Controlled Firms

Advantages
Long-term orientation Greater independence

Disadvantages
Less access to capital

of action Family culture as a source of pride Greater resilience in hard times Less bureaucratic and impersonal Financial benefits Knowing the business

markets may curtail growth Confusing organization Nepotism Spoiled-kid syndrome Paternalistic/autocratic rule Financial strain Succession dramas

The Management Succession Strategy

Management Succession
Is the transition of managerial decision making Is one of the greatest challenges confronting

owners and entrepreneurs in privately held businesses.

Research on private firms shows:
Many go out of existence after 10 years; only 3 out

of 10 survive into a second generation.

Only 16% make it to a third generation. Their average life expectancy is 24 years, which is

also the average tenure for founders of a business.

Succession Planning Issues

Senior Management Committed To

Plan
Well-Defined Job Descriptions
Open Process

Succession Planning
Transfer To Family Member

Role Of Owner- Full-Time/Part-Time/Retire Members Able To Work Together? Income Transition Business Environment Loyal Employees Tax Consequences

Transfer To Non-Family
Train Key Employee- Retain Some Equity Retain Control- Hire Manager Sell