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
