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ENDING THE VENTUREENDING THE VENTURE

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ROSELINE LUBULELLAHROSELINE LUBULELLAH

STRATHMORE UNIVERSITYSTRATHMORE UNIVERSITY

Introduction Introduction

Even though the intent of all entrepreneurs Even though the intent of all entrepreneurs is to establish a business for a long time, is to establish a business for a long time, many problems can cause these plans to many problems can cause these plans to fail. fail.

Since about one-half of all new ventures fail Since about one-half of all new ventures fail in their first four years of business, it is in their first four years of business, it is important for the entrepreneur to important for the entrepreneur to understand the options for either ending or understand the options for either ending or salvaging a venture.salvaging a venture.

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Requirements for keeping a Requirements for keeping a New Venture afloatNew Venture afloat

1.1. Avoid excess optimism when business Avoid excess optimism when business appears to be successfulappears to be successful

2.2. Always prepare good marketing plans Always prepare good marketing plans with clear objectiveswith clear objectives

3.3. Make good cash projections Make good cash projections

4.4. Keep abreast of the market placeKeep abreast of the market place

5.5. Identify stress points that can put the Identify stress points that can put the business in jeopardybusiness in jeopardy

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Warning Signs Of BankruptcyWarning Signs Of Bankruptcy1.1. Management of Finances becomes lax, so Management of Finances becomes lax, so

that no one can explain how money is being that no one can explain how money is being spentspent

2.2. Directors cannot document or explain Directors cannot document or explain major transactionsmajor transactions

3.3. Customers are given large discounts to Customers are given large discounts to enhance payments because of poor cash enhance payments because of poor cash flowflow

4.4. Contracts are accepted below standard Contracts are accepted below standard amounts to generate cashamounts to generate cash

5.5. Bank requests all repayments of its loan(s)Bank requests all repayments of its loan(s)

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6.6. Key personnel leave the companyKey personnel leave the company

7.7. Materials to meet orders are lackingMaterials to meet orders are lacking

8.8. Lateness in paying staffLateness in paying staff

9.9. Suppliers demand payment in cashSuppliers demand payment in cash

10.10.Customers’ complaints regarding service Customers’ complaints regarding service and product quality increaseand product quality increase

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Lessons from those who have experienced Lessons from those who have experienced Bankruptcy include:Bankruptcy include:Many entrepreneurs spend too much time Many entrepreneurs spend too much time and effort trying to diversify in markets and effort trying to diversify in markets where they lack knowledge.where they lack knowledge.Bankruptcy protects entrepreneurs only Bankruptcy protects entrepreneurs only from creditors and not from competitorsfrom creditors and not from competitorsIt is difficult to separate the entrepreneur It is difficult to separate the entrepreneur from the businessfrom the businessMany entrepreneurs do not think that Many entrepreneurs do not think that there businesses are going to fail until it is there businesses are going to fail until it is too late.too late.Bankruptcy is emotionally painful. Don’t go Bankruptcy is emotionally painful. Don’t go into hiding. Let employees and everyone else into hiding. Let employees and everyone else know what is happening.know what is happening.

Is This The End?Bankruptcy and Liquidation do not have to be Bankruptcy and Liquidation do not have to be the end for the entrepreneur. Many the end for the entrepreneur. Many entrepreneurs have failed many times before entrepreneurs have failed many times before finally succeedingfinally succeeding

If failure does occur the entrepreneur should:If failure does occur the entrepreneur should:

1.1.Consult with his or her relativesConsult with his or her relatives

2.2.Seek outside assistance from professionals, Seek outside assistance from professionals, friends and business associatesfriends and business associates

3.3.Try not to hang on to a venture that will Try not to hang on to a venture that will continually drain resourcescontinually drain resources

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Bankruptcy offers three options for the Bankruptcy offers three options for the entrepreneur:entrepreneur:

1.1.The venture will be reorganized under a The venture will be reorganized under a plan approved by the courts.plan approved by the courts.

This plan avoids large expenses and This plan avoids large expenses and prepares creditors in advance so that prepares creditors in advance so that negotiations can occur before the courts negotiations can occur before the courts become involvedbecome involved

2.2.An extended time payment plan to cover An extended time payment plan to cover outstanding debts. outstanding debts.

Both of these alternatives are designed to Both of these alternatives are designed to help entrepreneurs salvage the business and help entrepreneurs salvage the business and keep it going. keep it going.

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3.3.The venture will be liquidated either The venture will be liquidated either voluntarily or involuntarily.voluntarily or involuntarily.

One of the other venture-ending decisions One of the other venture-ending decisions that an entrepreneur may face is that an entrepreneur may face is succession of the business. succession of the business.

If the business is family owned, the If the business is family owned, the entrepreneur would likely seek a family entrepreneur would likely seek a family member to succeed. member to succeed.

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Other options, if no family member is Other options, if no family member is available or interested, include transferring available or interested, include transferring some or all of the business to an employee some or all of the business to an employee or outsider, or hiring an outsider to manage or outsider, or hiring an outsider to manage the business. the business.

Direct sale, employee stock option plan, and Direct sale, employee stock option plan, and management buyout are alternatives for the management buyout are alternatives for the entrepreneur in selling the venture. entrepreneur in selling the venture.

These are all exit strategy options for the These are all exit strategy options for the entrepreneur.entrepreneur.