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Ending The Venture
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Bankruptcy Bankruptcy is the inability to discharge all your
debts as they come due
(law) a legal process intended to insure equality among
the creditors of a corporation declared to beinsolvent(Someone who has insufficient assets to cover
their debts)
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Bankruptcys LessonsA. Overextension To Markets
B. Protects From Creditors NotCompetitors
C. Entrepreneur = Business
D. Recognize Failure Too Late
E. Emotionally Painful
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Strategy DuringReorganization
Prepare Plan
Sell Plan
CommunicateNo Checks That Cant Be
Covered
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Reducing Risk Of FailureAvoid Excess Optimism
Prepare Good Marketing Plan
Make Good Cash Projections
Keep Abreast Of Market Identify Business Stress Points
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Bankruptcy Warning Signs
Financial Management
Lax
Inability To
Document/Explain
Transactions
Large Discounts To
Speed Up Cash FlowContracts Below
Standard Amounts
Bank Wants
Subordination
Key Personnel Leave
Lack Of Materials
Unpaid Taxes
Demand For Cash
PaymentCustomer Complaints
Increase
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Failure Reality
Consult with
Family/Friends
Seek Outside Assistance
Drop Venture That Is
Draining Resources
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Harvesting the Venture:
A Focus on the Future
Harvest Plan
Defines how and when the owners and investors will
realize an actual cash return on their investment.
Reasons for Harvesting To maintain managerial control and succession for
successful continued operations.
To initiate a liquidity event that will generate a
significant amount of cash for the investors.An IPO (initial public offering) has become a reality.
Most realistic opportunity is sale of the business.
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HarvestingDirect Sale
Employee Stock Option
2-3 Year Plan to Sell To EmployeesCreate Trust Fund
Management Buy-Out- Based
On Value Of Goodwill & AssetAppraisal
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Direct Sale Requires Time & Planning
Buyer Payment Method
Business Broker
Business Plan
Employment Contract
Covenant Not To Compete
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Advantages and Disadvantages of Family Controlled
Firms
Advantages Long-term orientation
Greater independence
of action
Family culture as asource of pride
Greater resilience in
hard times
Less bureaucratic and
impersonal
Financial benefits
Knowing the business
Disadvantages Less access to capital
markets may curtail
growth
Confusing organization Nepotism
Spoiled-kid syndrome
Paternalistic/autocratic
rule
Financial strain
Succession dramas
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The Management Succession
Strategy
Management Succession Is the transition of managerial decision making
Is one of the greatest challenges confrontingowners and entrepreneurs in privately held
businesses.
Research on private firms shows:
Many go out of existence after 10 years; only 3 outof 10 survive into a second generation.
Only 16% make it to a third generation.
Their average life expectancy is 24 years, which isalso the average tenure for founders of a business.
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Succession Planning Issues
Senior Management Committed To
Plan
Well-Defined Job Descriptions
Open Process
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Succession Planning
Transfer To Family Member Role Of Owner- Full-Time/Part-Time/Retire Members Able To Work Together? Income
Transition Business Environment Loyal Employees Tax Consequences
Transfer To Non-Family Train Key Employee- Retain Some Equity Retain Control- Hire Manager Sell