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

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 Reality of Failure 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! Have a plan
“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
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