You are on page 1of 14

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) .

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

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

Payroll taxes are not paid. Suppliers demand payment in cash. Customers are given large discounts to enhance payments because of poor cash flow. Directors cannot document or explain major transactions.Warning sign for Bankruptcy Management of finances become lax. so that no can           explain how money being spent. Customer complaints regarding service and product quality increase. 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.

A major creditor. any party who has interest or a group of creditors will usually present the case to the court.Reorganization In this situation the courts try to give the venture time and “breathing room” to pay its debt. 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 .

. This option is only available for individual proprietorship. it binds the creditors. and it is strictly voluntarily form of bankruptcy. the entrepreneur files a plan for the installment payment of outstanding debts. it is possible to file for extended time payments. Under this plan.Extended Time Payment Plans o o o o If the entrepreneur has a regular income. If approved by the court. 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: Entrepreneur’s 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. friends. The entrepreneur should seek outside assistance from professionals. 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 . there are also some important considerations that should be mentioned if it should occur:    The entrepreneur should consult with his or her family.

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 .

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 .Harvesting Strategy.

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 .