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| This chapter of the textbook deals with the decisions, problems, and issues involved in ending the venture. Even though the intent of all entrepreneurs is to establish a business for a long time, many problems can cause these plans to fail. Since about one-half of all new ventures fail in their first four years of business, it is important for the entrepreneur to understand the options for either ending or salvaging a venture.
Bankruptcy offers three options for the entrepreneur. Under Chapter 11 of the Bankruptcy Act of 1978 (amended in 1984) the venture will be reorganized under a plan approved by the courts. New versions of this form of bankruptcy now allow the entrepreneur an opportunity to file a prepackaged bankruptcy plan. This plan avoids large expenses and prepares creditors in advance so that negotiations can occur before the courts become involved. Chapter 13 of the Bankruptcy Act provides for an extended time payment plan to cover outstanding debts. This is not involuntary and is not an alternative for partnerships or corporations. Both of these alternatives are designed to help entrepreneurs salvage the business and keep it going. Under Chapter 7 of the Bankruptcy Act, the venture will be liquidated either voluntarily or involuntarily.Keeping the business going is the primary intent of all entrepreneurs. Avoiding excessive optimism, preparing good marketing plans, making good cash projections, keeping familiar with the market, and being sensitive to stress points in the business can help keep the business operating. Entrepreneurs can also be sensitive to key warnings of potential problems. Lax management of finances, discounting to generate cash, loss of key personnel, lack of raw materials, nonpayment of payroll taxes, demands of suppliers to be paid in cash, and increased customer complaints about service and product quality are some of the key factors that lead to bankruptcy. If the business does fail, however, the entrepreneur should always consider starting over. Failure can be a learning process, as evidenced by the many famous inventors who succeeded after many failures.One of the other venture-ending decisions that an entrepreneur may face is succession of the business. If the business is family owned, the entrepreneur would likely seek a family member to succeed. Other options, if no family member is available or interested, include transferring some or all of the business to an employee or outsider, or hiring an outsider to manage the business. Direct sale, employee stock option plan, and management buyout are alternatives for the entrepreneur in selling the venture. These are all exit strategy options for the entrepreneur. |