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Ending the Venture

Ending the Venture. Chapter 17. Bankruptcy Overview. Statistics on Bankruptcy Frequency Breakdown of types. Lessons from Bankruptcy. Don’t diversify too much Bankruptcy only protects from creditors Can be difficult to separate owner and company Don’t wait too long Don’t hide it.

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Ending the Venture

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  1. Ending the Venture Chapter 17

  2. Bankruptcy Overview • Statistics on Bankruptcy • Frequency • Breakdown of types

  3. Lessons from Bankruptcy • Don’t diversify too much • Bankruptcy only protects from creditors • Can be difficult to separate owner and company • Don’t wait too long • Don’t hide it

  4. Bankruptcy Act of 1978 • Purpose • Three types of Bankruptcy • Chapter 11 • Chapter 13 • Chapter 7

  5. Chapter 11- Reorganization • Least severe • Process • Present case • Design a plan • Extension • Substitution • Composition • Divide interests • If affected, tell how • Agreement

  6. Surviving Bankruptcy • Can be used to restructure and reorganize • Don’t file for Chapter 11, unless you mean it • Be prepared for creditor’s to examine financial statements • Understand the process and what is protected • Transfer litigation to bankruptcy courts • Prepare realistic financial plan

  7. Prepackaged Bankruptcy • Settle debts before legal proceedings • Process • Creditor Benefits • Other Applicant Benefits • Applicant Drawbacks

  8. Chapter 13- Extended Payment Plans • Sole proprietorship • Unsecured debt less than $100,000 • Secured debt less than $350,000

  9. Chapter 13 • Order of priority • Secured creditors • Administrative expenses • Claims from business operations • Wage claims up to $2000 • Contributions to employee payment plans • Claims by creditors • Taxes • General Creditors

  10. Chapter 7- Liquidation • Voluntary v. Involuntary Bankruptcy

  11. Reorganization Strategy • Successful strategy • Prepare a plan • Sell plan to secured creditors • Communicate with creditors • Don’t write checks you can’t cover

  12. Keep Venture Going • Avoid Excess Optimism • Develop Effective Marketing Plan • Good Cash Projections • Know the Market Environment • Identify Stress Points

  13. “I Have a Bad Feeling About This” • Warning Signs of Bankruptcy • Materials to meet orders are lacking • Payroll taxes are not paid • Suppliers demand payment in cash • Increase in customer complaints

  14. “I Have a Bad Feeling About This” • Warning Signs of Bankruptcy • Lax financial management • Directors can’t explain major transactions • Deep discounts to customers to get money • Contracts accepted below standard amounts to generate cash flow • Bank requests subordination of loans • Key personnel leave the company

  15. Other Issues • Starting Over • Learn from Mistakes • Dealing with venture capitalists in a new venture • Reality of Failure • Consult with family • Consult with professionals • Don’t hang in too long

  16. Business Turnarounds • Recognize warning signs and act! • “Hand on” management • Have a plan • Get out and understand the problem • Goals and objectives • Action

  17. Exit Strategy • “Getting out” • Ways • Succession by Family Members • Direct Sale • ESOP • Management Buyout

  18. Succession of Business • To Family Members • High failure rate • Why? • Plan components/considerations • Owner’s role • Family dynamics • Income • Business environment • Treatment of loyal employees • Issues

  19. Succession of Business • To Non-family Members • Train existing employees • Advantages • Equity issues • Can take time • Hire a manager • Equity issues • Job description • Succession in Non-family companies • Partnership • Corporations/LLC’s

  20. Harvesting • Direct Sale • ESOP • Management Buyout

  21. Direct Sale • Most common harvesting method • Time and planning • Payment • Brokers • Agreement terms • Advisory role • Competition prevention

  22. ESOP • Substitutes for pension plan • Highly regulated • Advantages • Motivation • Loyalty • Easier transfer later • Tax deductions • Disadvantages • Complexity

  23. Management Buyout • Direct sale • Process • Methods • Cash • Bank • Note to entrepreneur • Advantages • Selling stock • Why would bank and investors support? • Public Offering • Merger

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