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ENDING THE VENTURE Bankruptcy is a term that has been on the minds of many entrepreneurs in the past couple of years, as business face weak economy, increase in competition, and rising costs of doing business. 1Liquidation (70% in 2011)Reorganization (21% in 2011)Installment payments (9% in 2011)

Common types of bankruptcies:

Many entrepreneurs spend too much time and effort trying to diversify in markets where they are a lot of knowledge.Bankruptcy protects entrepreneurs only from the creditors, not from competitors. Its difficult to separate the entrepreneurs from the business.Many entrepreneur's do not think their business are going to fail until its too late. Entrepreneurs should file for bankruptcy early.

Bankruptcy lessons: Bankruptcy can be used as a bargaining chip to allow the entrepreneur to voluntarily structure and reorganize the venture. File before the venture runs out of cash or has no incoming revenue so that expenses not protected by bankruptcy can be paid.Dont file for bankruptcy protection unless the venture has a legitimate chance of recovery. Be prepared to have a creditor examine all financial transaction for the last 12 months, seeking possible debtor fraud.Maintain good records. Understand completely how the protection against creditors work and what is necessary to keep it in place. If there is any litigation in existence, transfer it to bankruptcy court, which may be a more favorable forum for the entrepreneur. Focus efforts on preparing a realistic financial reorganization plan.Surviving Bankruptcy Management of finances become lax, so that no can explain how money being spent. Directors cannot document or explain major transactions.Customers are given large discounts to enhance payments because of poor cash flow. Contracts are accepted below standard amounts to generate cash.Bank requests subordination of its loansKey personnel leave the company.Materials to meet orders are lacking.Payroll taxes are not paid. Suppliers demand payment in cash.Customer complaints regarding service and product quality increase.Warning sign for BankruptcyThe decisions made in the reorganization plan generally reflect one or a combination of the following:Extension -Postpone claimsSubstitution -Exchange stock for debtComposition Settlement -Debt is prorated to creditors as settlement

Reorganization In this situation the courts try to give the venture time and breathing room to pay its debt.A major creditor, any party who has interest or a group of creditors will usually present the case to the court.Then a plan for reorganization will be prepared to indicate how the business will be turned around.

The entrepreneur can speed up the process by:Taking the initiative in preparing a planSelling the plan to secured creditorsCommunicating with groups of creditorsNot writing checks that cannot be coveredEnhancing the bankruptcy process by:Keeping creditors abreast of how the business is doingStressing the significance of creditors support during the process

Strategy During ReorganizationIf the entrepreneur has a regular income, it is possible to file for extended time payments. This option is only available for individual proprietorship, and it is strictly voluntarily form of bankruptcy.Under this plan, the entrepreneur files a plan for the installment payment of outstanding debts. If approved by the court, it binds the creditors, even if they had no originally agreed to such installments payments.Extended Time Payment PlansThe fallowing are the key factors that can be reduce to business failure:

Avoid excess optimism when business appears to be successful.Always prepare a good marketing plans and with clear objectivesMake good cash projections and avoid capitalizationKeep a abreast of market place Identify stress points that can put the business in jeopardy

Liquidation Extreme case of bankruptcyVoluntary bankruptcy: Entrepreneurs decision to file for bankruptcyCourts will require a current income and expense statementInvoluntary bankruptcy: Petition of bankruptcy filed by creditors without consent of entrepreneur

LiquidationSince failure can happen, there are also some important considerations that should be mentioned if it should occur: The entrepreneur should consult with his or her family.The entrepreneur should seek outside assistance from professionals, friends, and business associatesIt is important to not try to hang on to a venture that will continually drain resources if the end is inevitable

The Reality of FailureExit strategies include:An initial public offering (IPO)Private sale of stockSuccession by a family member or a non-family memberMerger with another companyLiquidation of the companyExit StrategyThis alternative also requires that the value of the business be determined:Direct SaleEmployee Stock Option PlanManagement BuyoutHarvesting Strategy- is to sell the business outright to either an employee or an outsider.Entrepreneurs start new ventures even after failingEntrepreneurs have the need for:Market researchMore initial capitalizationStronger business skillsBusiness failure does not have to be a stigma when seeking venture capital

Starting Over