ending the venture chapter 17. bankruptcy overview statistics on bankruptcy statistics on bankruptcy...
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Ending the VentureEnding the Venture
Chapter 17Chapter 17
Bankruptcy OverviewBankruptcy Overview
Statistics on BankruptcyStatistics on Bankruptcy FrequencyFrequency Breakdown of typesBreakdown of types
Lessons from BankruptcyLessons from Bankruptcy
Don’t diversify too muchDon’t diversify too much Bankruptcy only protects from Bankruptcy only protects from
creditorscreditors Can be difficult to separate owner Can be difficult to separate owner
and companyand company Don’t wait too longDon’t wait too long Don’t hide itDon’t hide it
Bankruptcy Act of 1978Bankruptcy Act of 1978
PurposePurpose Three types of BankruptcyThree types of Bankruptcy
Chapter 11Chapter 11 Chapter 13Chapter 13 Chapter 7Chapter 7
Chapter 11- ReorganizationChapter 11- Reorganization
Least severeLeast severe ProcessProcess
Present casePresent case Design a planDesign a plan
ExtensionExtension SubstitutionSubstitution CompositionComposition
Divide interestsDivide interests If affected, tell howIf affected, tell how
Agreement Agreement
Surviving BankruptcySurviving Bankruptcy
Can be used to restructure and reorganizeCan be used to restructure and reorganize Don’t file for Chapter 11, unless you mean itDon’t file for Chapter 11, unless you mean it Be prepared for creditor’s to examine Be prepared for creditor’s to examine
financial statementsfinancial statements Understand the process and what is Understand the process and what is
protectedprotected Transfer litigation to bankruptcy courtsTransfer litigation to bankruptcy courts Prepare realistic financial planPrepare realistic financial plan
Prepackaged BankruptcyPrepackaged Bankruptcy
Settle debts before legal proceedingsSettle debts before legal proceedings ProcessProcess Creditor BenefitsCreditor Benefits Other Applicant BenefitsOther Applicant Benefits Applicant DrawbacksApplicant Drawbacks
Chapter 13- Extended Payment Chapter 13- Extended Payment PlansPlans
Sole proprietorshipSole proprietorship Unsecured debt less than $100,000Unsecured debt less than $100,000 Secured debt less than $350,000Secured debt less than $350,000
Chapter 13Chapter 13
Order of priorityOrder of priority Secured creditorsSecured creditors Administrative expensesAdministrative expenses Claims from business operationsClaims from business operations Wage claims up to $2000Wage claims up to $2000 Contributions to employee payment plansContributions to employee payment plans Claims by creditorsClaims by creditors TaxesTaxes General CreditorsGeneral Creditors
Chapter 7- LiquidationChapter 7- Liquidation
Voluntary v. Involuntary BankruptcyVoluntary v. Involuntary Bankruptcy
Reorganization StrategyReorganization Strategy
Successful strategySuccessful strategy Prepare a planPrepare a plan Sell plan to secured creditorsSell plan to secured creditors Communicate with creditorsCommunicate with creditors Don’t write checks you can’t coverDon’t write checks you can’t cover
Keep Venture GoingKeep Venture Going
Avoid Excess OptimismAvoid Excess Optimism Develop Effective Marketing PlanDevelop Effective Marketing Plan Good Cash ProjectionsGood Cash Projections Know the Market EnvironmentKnow the Market Environment Identify Stress PointsIdentify Stress Points
““I Have a Bad Feeling About I Have a Bad Feeling About This”This”
Warning Signs of BankruptcyWarning Signs of Bankruptcy Materials to meet orders are lackingMaterials to meet orders are lacking Payroll taxes are not paidPayroll taxes are not paid Suppliers demand payment in cashSuppliers demand payment in cash Increase in customer complaintsIncrease in customer complaints
““I Have a Bad Feeling About I Have a Bad Feeling About This”This”
Warning Signs of BankruptcyWarning Signs of Bankruptcy Lax financial managementLax financial management Directors can’t explain major transactionsDirectors can’t explain major transactions Deep discounts to customers to get moneyDeep discounts to customers to get money Contracts accepted below standard Contracts accepted below standard
amounts to generate cash flowamounts to generate cash flow Bank requests subordination of loansBank requests subordination of loans Key personnel leave the companyKey personnel leave the company
Other IssuesOther Issues
Starting OverStarting Over Learn from MistakesLearn from Mistakes Dealing with venture capitalists in a new Dealing with venture capitalists in a new
ventureventure Reality of FailureReality of Failure
Consult with familyConsult with family Consult with professionalsConsult with professionals Don’t hang in too longDon’t hang in too long
Business TurnaroundsBusiness Turnarounds
Recognize warning signs and act!Recognize warning signs and act! ““Hand on” managementHand on” management
Have a planHave a plan Get out and understand the problemGet out and understand the problem Goals and objectivesGoals and objectives
ActionAction
Exit StrategyExit Strategy
““Getting out”Getting out” WaysWays
Succession by Family MembersSuccession by Family Members Direct SaleDirect Sale ESOPESOP Management BuyoutManagement Buyout
Succession of BusinessSuccession of Business
To Family MembersTo Family Members High failure rateHigh failure rate
Why?Why? Plan components/considerationsPlan components/considerations
Owner’s roleOwner’s role Family dynamicsFamily dynamics IncomeIncome Business environmentBusiness environment Treatment of loyal employeesTreatment of loyal employees
IssuesIssues
Succession of BusinessSuccession of Business To Non-family MembersTo Non-family Members
Train existing employeesTrain existing employees AdvantagesAdvantages Equity issuesEquity issues Can take timeCan take time
Hire a managerHire a manager Equity issuesEquity issues Job descriptionJob description
Succession in Non-family companiesSuccession in Non-family companies PartnershipPartnership Corporations/LLC’sCorporations/LLC’s
HarvestingHarvesting
Direct SaleDirect Sale ESOPESOP Management BuyoutManagement Buyout
Direct SaleDirect Sale
Most common harvesting methodMost common harvesting method Time and planningTime and planning PaymentPayment BrokersBrokers Agreement termsAgreement terms
Advisory roleAdvisory role Competition preventionCompetition prevention
ESOPESOP
Substitutes for pension planSubstitutes for pension plan Highly regulatedHighly regulated AdvantagesAdvantages
MotivationMotivation LoyaltyLoyalty Easier transfer laterEasier transfer later Tax deductionsTax deductions
DisadvantagesDisadvantages ComplexityComplexity
Management BuyoutManagement Buyout
Direct saleDirect sale ProcessProcess MethodsMethods
CashCash BankBank Note to entrepreneurNote to entrepreneur
AdvantagesAdvantages Selling stockSelling stock
Why would bank and investors support?Why would bank and investors support? Public OfferingPublic Offering MergerMerger