Professional Documents
Culture Documents
Hisrich
Peters
Shepherd
Exit Strategy
Exit strategies include:
Initial public offering (IPO).
Private sale of stock.
Succession by a family member or a nonfamily
member.
Merger with another company.
Liquidation.
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Succession of Business
Transfer to Family Members
Role of owner - full-time/part-time/retire.
Family dynamics.
Income for working family members and
shareholders.
Transition business environment.
Treatment of loyal employees.
Tax consequences.
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Succession of Business
(cont.)
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Advantages:
Motivates employees to put in extra time or effort.
Provides a mechanism to pay back loyal employees.
Allows transfer of business under a planned written
agreement.
Permits the company to reap the advantage of
deducting contributions on ESOP or any dividends paid.
15-9
Management Buyout
Usually involves a direct sale of the venture for
some predetermined price.
To establish a price, the entrepreneur should:
Have an appraisal of all the assets.
Determine the goodwill value established from past
revenue.
BankruptcyAn Overview
Most common types of bankruptcies:
Chapter 7 or liquidation (69% in 2008).
Chapter 11 or reorganization (19% in 2008).
Chapter 13 or installment payments (12% in
2008).
15-11
BankruptcyAn Overview
(cont.)
Bankruptcy lessons:
Too much time and effort is spent on diversifying
in markets where entrepreneurs lack knowledge.
Bankruptcy protects entrepreneurs from
creditors, not from competitors.
It is difficult to separate entrepreneurs from the
business.
Entrepreneurs should file for bankruptcy early.
Bankruptcy needs to be shared with employees
and everybody else involved.
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BankruptcyAn Overview
(cont.)
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Chapter 11Reorganization
Courts try to give the venture breathing
room to pay its debts.
A plan for reorganization is prepared and
approved by the US Bankruptcy Court.
Decisions made reflect one or a
combination of the following:
Extension - Postpone claims.
Substitution - Exchange stock for debt.
Composition settlement - Debt is prorated to
creditors as settlement.
15-14
Chapter 11Reorganization
(cont.)
Surviving Bankruptcy
Bankruptcy can be used as a bargaining chip to
voluntarily restructure and reorganize the
venture.
File before failure of cash or revenue.
Chapter 11 should be filed only if a chance of
recovery exists.
Be prepared for examination of transactions for
fraud.
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Chapter 11Reorganization
(cont.)
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Chapter 7Liquidation
The most extreme case of bankruptcy.
Voluntary bankruptcy - Entrepreneurs
decision to file for bankruptcy.
Courts will require a current income and
expense statement.
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Starting Over
Entrepreneurs are likely to continue starting
new ventures even after failing.
Entrepreneurs who have failed tend to have
a better understanding and appreciation for
the need for:
Market research.
More initial capitalization.
Stronger business skills.
15-24
Business Turnarounds
Learn to recognize the warning signs of
bankruptcy.
Principles of a successful turnaround:
Aggressive hands-on management.
Management must have a plan.
Action.
15-25