Presentation is loading. Please wait.

Presentation is loading. Please wait.

17-2 Ending the Venture McGraw-Hill/Irwin Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17.

Similar presentations


Presentation on theme: "17-2 Ending the Venture McGraw-Hill/Irwin Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17."— Presentation transcript:

1

2 17-2 Ending the Venture McGraw-Hill/Irwin Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17

3 17-3 Bankruptcy  Bankruptcy act (1978; amendments added in 1984 and 2005) ensures:  Fair distribution to creditors.  Protect debtors: unfair depletion and demands.  Most common types of bankruptcies:  Chapter 7: liquidation (70%).  Chapter 13: installment payments (29%).  Chapter 11: reorganization (1%).  Prepackaged bankruptcy.

4 17-4 Business and Nonbusiness U.S. Bankruptcy Filings, 1984–2004  >

5 17-5 Bankruptcy’s Lessons  Too much time and effort spent on diversifying in markets where entrepreneurs lack knowledge.  Bankruptcy protects entrepreneurs from creditors, not from competitors.  Difficult to separate entrepreneurs from the business.  Entrepreneurs recognize failure too late.  Bankruptcy is emotionally painful.

6 17-6 Bankruptcy Act Provisions  The Act provides three alternative provisions for a firm near or at a position of insolvency:  Reorganization, or Chapter 11 bankruptcy.  Extended time payment, or Chapter 13 bankruptcy.  Liquidation, or Chapter 7 bankruptcy.

7 17-7 Chapter 11: Reorganization  Least severe alternative: “breathing room”.  Cash flow problems can be overcome.  Plan prepared and approved by court.  Decisions made reflect one or a combination of the following:  Extension: postpone claims.  Substitution: exchange something for debt.  Composition: prorated settlement.

8 17-8 Surviving Bankruptcy  Can be used as a bargaining chip to restructure and reorganize.  File before failure of cash or revenue.  Chapter 11 should be files only if chance of recovery.  Be prepared for examination of transactions for fraud.  Maintain good records.  Understand completely.  Transfer litigation to bankruptcy court.  Realistic reorganization plan.

9 17-9 Chapter 13: Extended Payment  Individual creates a five-year repayment plan under court supervision.  A court appointed trustee receives money from debtor.  He/ she is responsible for making scheduled payments to all creditors.  This budgets future income to outstanding debt.  Requires payment of all priority claims.

10 17-10 Chapter 13: Priorities  Secured creditors.  Administrative expense.  Claims from operations.  Wage claims.  Contributions to benefit plans.  Claims of consumer creditors.  Taxes  General creditors.

11 17-11 Chapter 7: Liquidation  Voluntary vs. involuntary.  Voluntary: entrepreneur’s decision to file for bankruptcy.  Involuntary: Petition of bankruptcy filed by creditors without consent of entrepreneur.  Involuntary Requirements  Debts not being paid when due (1 – 3 creditors).  Custodian appointed.  Fair value of assets < debts (balance sheet test).

12 17-12 Liquidation under Chapter 7 Involuntary Bankruptcy  >

13 17-13 Strategy During Reorganization  Prepare plan.  Sell plan.  Communicate.  No checks that can’t be covered.

14 17-14 Requirements of Keeping a Venture Afloat  >

15 17-15 Bankruptcy Warning Signs  Financial management becomes lax.  Inability to document/ explain transactions.  Large discounts given to speed up cash flow.  Contracts are accepted below standard amounts.  Bank requests subordination.  Key personnel leave.  Lack of materials.  Unpaid taxes.  Demand for cash payment.  Customer complaints increase.

16 17-16 Failure Reality  Entrepreneur should:  Consult with family/friends.  Seek outside assistance.  Drop venture that is draining resources.

17 17-17 Business Turnaround  Entrepreneur needs to recognize the warning signs of bankruptcy.  Consider following principles:  Aggressive hands-on management.  Management must have a plan.  Action.

18 17-18 Succession Planning Issues  Senior management committed to plan.  Well-defined job descriptions.  Open process.

19 17-19 Succession Planning Tips  >

20 17-20 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.

21 17-21 Harvesting  Direct sale.  Employee stock option  2-3 year plan to sell to employees.  Create trust fund.  Management buy-out: based on value of goodwill & asset appraisal.

22 17-22 Direct Sale  Requires time and planning.  Buyer payment method.  Business broker.  Business plan.  Employment contract.  Covenant not to compete.


Download ppt "17-2 Ending the Venture McGraw-Hill/Irwin Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17."

Similar presentations


Ads by Google