1. Chapter 19 Planning for Change

2. Copyright © Houghton Mifflin Company19-2 Overview The contingency plan The harvest plan Dealing with failure: bankruptcy

3. Copyright © Houghton Mifflin Company19-3 The Contingency Plan Be prepared for… –Economic changes –Taxes and regulations –Product liability –Loss of key employees –Succession planning –Decline in sales

4. Copyright © Houghton Mifflin Company19-4 Type of Entrepreneur = Type of Harvest or Exit Growth entrepreneurs—size matters; rarely leave their ventures Habitual entrepreneurs—start and run several, even simultaneously; no exit plan Harvest entrepreneurs—start and build for the purpose of selling Spiral, or helical, entrepreneurs—try to balance business with personal lives, so start and stop

5. Copyright © Houghton Mifflin Company19-5 The Many Ways to Harvest Sell the business Cash out but stay in Liquidate

6. Copyright © Houghton Mifflin Company19-6 Selling the Business If you want to move on Know from the beginning that you want to sell –Maintain audited financials –Don’t minimize taxes –Look for a window of opportunity You don’t have to sell all the assets –Sale/leaseback

7. Copyright © Houghton Mifflin Company19-7 Entrepreneur ABC COMPANY Child ABC COMPANY Operations Entrepreneur DEF COMPANY Assets Lease Assets Cashing Out But Staying In Selling stock Restructuring the business

8. Copyright © Houghton Mifflin Company19-8 More Cashing Out But Staying In Phased sale –Sell % interest but control operations –Sell at prearranged price Joining a roll-up –Works in a fragmented industry –Entrepreneur’s business purchased by a consolidator –Entrepreneur may stay on during transition to a public offering when he is bought out

9. Copyright © Houghton Mifflin Company19-9 Bankruptcy: A Less Than Graceful Exit Chapter 11: Reorganization –Business continues to operate –Submits a plan to pay creditors Chapter 7: Liquidation –Business does not have resources to pay creditors –Assets liquidated and creditors paid from proceeds

10. Copyright © Houghton Mifflin Company19-10 Ways to Avoid Bankruptcy Avoid relying on one major customer or industry for revenue generation Keep overhead costs to essentials Maintain a high degree of liquidity Maintain current and honest relationships with bankers, creditors, and suppliers

11. Copyright © Houghton Mifflin Company19-11 Take-Aways List what students took away from the discussion in real time