Chapter 19 Planning for Change Copyright Houghton Mifflin

Overview • The contingency plan • The harvest plan • Dealing with failure: bankruptcy

The Contingency Plan • Be prepared for… – Economic changes – Taxes and regulations

Type of Entrepreneur = Type of Harvest or Exit • Growth entrepreneurs—size matters; rarely

The Many Ways to Harvest • Sell the business • Cash out but stay

Selling the Business • If you want to move on • Know from the

Cashing Out But Staying In • Selling stock • Restructuring the business Entrepreneur ABC

More Cashing Out But Staying In • Phased sale – Sell % interest but

Bankruptcy: A Less Than Graceful Exit • Chapter 11: Reorganization – Business continues to

Ways to Avoid Bankruptcy • Avoid relying on one major customer or industry for

Take-Aways • List what students took away from the discussion in real time Copyright

Slides: 11

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The Contingency Plan • Be prepared for… – Economic changes – Taxes and regulations – Product liability – Loss of key employees – Succession planning – Decline in sales Copyright © Houghton Mifflin Company 3

Type of Entrepreneur = Type of Harvest or Exit • Growth entrepreneurs—size matters; rarely leave their ventures • Habitual entrepreneurs—start and run several, even simultaneously; no exit plan • Harvest entrepreneurs—start and build for the purpose of selling • Spiral, or helical, entrepreneurs—try to balance business with personal lives, so start and stop Copyright © Houghton Mifflin Company 4

Selling the Business • If you want to move on • Know from the beginning that you want to sell – Maintain audited financials – Don’t minimize taxes – Look for a window of opportunity • You don’t have to sell all the assets – Sale/leaseback Copyright © Houghton Mifflin Company 6

Cashing Out But Staying In • Selling stock • Restructuring the business Entrepreneur ABC COMPANY Entrepreneur DEF COMPANY Assets Copyright © Houghton Mifflin Company Lease Assets Child ABC COMPANY Operations 7

More Cashing Out But Staying In • Phased sale – Sell % interest but control operations – Sell at prearranged price • Joining a roll-up – Works in a fragmented industry – Entrepreneur’s business purchased by a consolidator – Entrepreneur may stay on during transition to a public offering when he is bought out Copyright © Houghton Mifflin Company 8

Bankruptcy: A Less Than Graceful Exit • Chapter 11: Reorganization – Business continues to operate – Submits a plan to pay creditors • Chapter 7: Liquidation – Business does not have resources to pay creditors – Assets liquidated and creditors paid from proceeds Copyright © Houghton Mifflin Company 9

Ways to Avoid Bankruptcy • Avoid relying on one major customer or industry for revenue generation • Keep overhead costs to essentials • Maintain a high degree of liquidity • Maintain current and honest relationships with bankers, creditors, and suppliers Copyright © Houghton Mifflin Company 10