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ENDING THE

VENTURE
Bankruptcy is a term that has been
on the minds of many entrepreneurs in
the past couple of years, as business face
weak economy, increase in competition,
and rising costs of doing business.

Common types of bankruptcies:

Liquidation (70% in 2011)


Reorganization (21% in 2011)
Installment payments (9% in
2011)

Bankruptcy lessons:
Many entrepreneurs spend too much time and
effort trying to diversify in markets where they
are a lot of knowledge.
Bankruptcy protects entrepreneurs only from
the creditors, not from competitors.
Its difficult to separate the entrepreneurs from
the business.
Many entrepreneur's do not think their
business are going to fail until its too late.

Entrepreneurs

early.

should file for bankruptcy

Surviving Bankruptcy

Bankruptcy can be used as a bargaining chip to allow the


entrepreneur to voluntarily structure and reorganize the venture.
File before the venture runs out of cash or has no incoming revenue
so that expenses not protected by bankruptcy can be paid.
Dont file for bankruptcy protection unless the venture has a
legitimate chance of recovery.
Be prepared to have a creditor examine all financial transaction for
the last 12 months, seeking possible debtor fraud.
Maintain good records.
Understand completely how the protection against creditors work
and what is necessary to keep it in place.
If there is any litigation in existence, transfer it to bankruptcy court,
which may be a more favorable forum for the entrepreneur.
Focus efforts on preparing a realistic financial reorganization plan .

Warning sign for


Bankruptcy
Management of finances become lax, so that no can

explain how money being spent.


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.
Bank requests subordination of its loans
Key personnel leave the company.
Materials to meet orders are lacking.
Payroll taxes are not paid.
Suppliers demand payment in cash.
Customer complaints regarding service and product quality
increase.

Reorganization
In this situation the courts try to give the venture
time and breathing room to pay its debt.
A major creditor, any party who has interest or a
group of creditors will usually present the case to the
court.
Then a plan for reorganization will be prepared to
indicate how the business will be turned around.

The decisions made in the reorganization


plan generally reflect one or a combination
of the following:
Extension -Postpone claims
Substitution -Exchange stock for debt
Composition Settlement -Debt is prorated to

Strategy During
Reorganization

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
Not writing checks that cannot be covered

Enhancing the bankruptcy process by:


Keeping creditors abreast of how the business is
doing
Stressing the significance of creditors support
during the process

Extended Time Payment Plans


o

If the entrepreneur has a regular income, it is


possible to file for extended time payments.
This option is only available for individual
proprietorship, and it is strictly voluntarily form
of bankruptcy.
Under this plan, the entrepreneur files a plan
for the installment payment
of outstanding debts.
If approved by the court, it binds the creditors,
even if they had no originally agreed to such
installments payments.

Liquidation
The fallowing are the key factors that can be reduce
to business failure:

Avoid excess optimism when business appears to


be successful.
Always prepare a good marketing plans and with
clear objectives
Make good cash projections and avoid capitalization
Keep a abreast of market place
Identify stress points that can put the business in
jeopardy

Liquidation
Extreme case of bankruptcy
Voluntary bankruptcy: Entrepreneurs
decision to file for bankruptcy

Courts will require a current income and expense


statement

Involuntary bankruptcy: Petition of


bankruptcy filed by creditors without
consent of entrepreneur

The Reality of Failure


Since failure can happen, there are also some
important considerations that should be
mentioned if it should occur:

The entrepreneur should consult with his or


her family.
The entrepreneur should seek outside
assistance from professionals, friends, and
business associates
It is important to not try to hang on to a
venture that will continually drain
resources if the end is inevitable

Exit Strategy
Exit strategies include:
1) An initial public offering (IPO)
2) Private sale of stock
3) Succession by a family member or
a non-family member
4) Merger with another company
5) Liquidation of the company

Harvesting Strategy- is to sell the


business outright to either an employee
or an outsider.
This alternative also requires that the value of
the business be determined:

Direct Sale

Employee Stock Option Plan

Management Buyout

Starting Over
Entrepreneurs start new ventures even after
failing
Entrepreneurs have the need for:

Market research
More initial capitalization
Stronger business skills

Business failure does not have to be a


stigma when seeking venture capital