Chapter 9

The Organizational Plan

Hisrich
Peters

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Shepherd
Legal Forms of Business

 Three basic legal forms of business:

 Proprietorship - Single owner, unlimited liability,
controls all decisions, and receives all profits.
 Partnership - Two or more individuals having
unlimited liability who have pooled resources to
own a business.
 Public Ltd Company/Private Limited Company -
regulated by law; treated as a separate legal
entity for liability and tax purposes.

9-2
 Sole Proprietorship in Bangladesh
 A sole proprietorship in Bangladesh does not constitute a separate legal entity
therefore it is not distinct from the owner/ proprietor. The business owner is
personally accountable for all liabilities incurred during the course of the
business.
 Any Bangladeshi citizen of at least 18 years of age is eligible for a sole
proprietorship.
 A local commercial address must be provided as the business address for the
sole proprietorship.
 Profits of the sole proprietorship are treated as income of the individual who
owns the entity, thus it is subjected to a tax rate as that of personal income.
 As a Bangladesh sole proprietorship is not a legal entity, it cannot register
another business firm.
 Sole proprietorships do not need to audit their accounts as any profits will be
taxed as personal taxes.
 Trade License is the basic requirement for proprietorship.
 Trade License needs to be renewed annually. Further information on

https://resource.ogrlegal.com/proprietorship-in-
bangladesh/

9-3
 Partnership in Bangladesh
LIABILITY
 A partnership is considered as a separate legal identity (i.e. separate from its
owners) in Bangladesh only if the partnership is registered.
 All the partners of a partnership are liable jointly for the liability of the
partnership.
 The concept of a Limited Liability Partnership does not exist in Bangladesh.

TAXATION
 From a tax perspective, partnerships in Bangladesh are not taxed at the entity
level and profits are treated as part of each partners’ personal income and are
taxed at personal income tax rates.

MEMBERS & MANAGEMENT

 There must be a minimum of 2 partners and maximum of 20 partners.
 The partners can be natural persons or companies.
 Unlike private or public limited companies, a partnership in Bangladesh does
not have directors or shareholder instead the partners own and run the
business. Further Information on
 https://resource.ogrlegal.com/partnership-in-bangladesh/
9-4
 Private/Public Limited Company in
Bangladesh
 As per section 2(q) of Companies Act 1994, A Private
Company is a Company which by its Articles of Association
restricts the right of transfer of the share, limits the number of
members to fifty and prohibits invitation to the public to
subscribe to the shares or debentures of the Company.

 A public limited company has a minimum of seven members,

three directors, with no maximum number of
shareholders. Its shareholders can be any legal person or any
individual who is above the age of 18, qualified by Bangladesh
Law. It can raise funds from the public.
 http://www.roc.gov.bd/site/page/855dc577-3035-4ca4-b376-
49c517099a3e/-

9-5
Designing the Organization

 Organization structure.
 Planning, measurement, and evaluation
schemes.
 Rewards.
 Selection criteria.
 Training.

9-6
Building the Management Team and a
Successful Organization Culture
 A management team must be able to
accomplish three functions:
 Execute the business plan.
 Identify fundamental changes in the business as
they occur.
 Make adjustments to the plan based on changes
in the environment and market that will
maintain profitability.

9-7
Building the Management Team and a
Successful Organization Culture (cont.)
 Important factors in establishing an
effective team:
 Desired culture must match business strategy
outlined in the business plan.
 Employees must be motivated and rewarded for
good work.
 Entrepreneur should be flexible to try different
things.
 Spend extra time in the hiring process.
 Core values and appropriate tools must be
provided for employees to effectively complete
their jobs.
9-8
The Role of a Board of Directors

 Functions of the board of directors:

 Reviewing and operating capital budgets.
 Developing longer-term strategic plans for
growth and expansion.
 Supporting day-to-day activities.
 Resolving conflicts among owners or
shareholders.
 Ensuring the proper use of assets.
 Developing a network of information sources for
entrepreneurs.

9-9
The Financial Plan

 It provides the entrepreneur with a

complete picture of:
 The amount funds and when they are coming
into the organization.
 Where funds are going and how much cash is
available.
 The projected financial position of the firm.
 The plan explains how the entrepreneur
intends to meet financial obligations and
maintain the venture’s financial security.

9-10
 Major financial items should
include:--
1. Pro forma income statement
2. pro forma cash flow
3. Pro forma balance sheet
4. break-even analysis

9-11
Assumptions required to make
(sample)

9-12
 Operating and Capital Budgets

 These are developed before developing the

pro forma income statement.
 Sales budget – An estimate of the expected
volume of sales monthly.
 Cost of sales can be determined from the sales
forecasts.

9-13
9-14
Operating and Capital Budgets

 Operating costs:
 Includes fixed expenses (rent, utility, salary,
advertising) incurred regardless of sales
volume.
 Variable expenses (labor, material,
transportation, entertainment) must be linked to
strategy in the business plan.
 Capital budgets provide a basis for
evaluating expenditures that will impact the
business for more than one year.
Ex: expenditure for new equipment, vehicles, computers

9-15
9-16
A Sample of operating and capital
budgets

9-17
 Pro Forma Income Statements

 Pro forma income - Projected net profit

calculated from projected revenue minus
projected costs and expenses.
 Sales by month is calculated first.
 Basis of the figures - Marketing research, industry
sales, trial experience, forecasting, and financial data
of similar start-ups.
 Projections of all operating expenses for each of
the months during the first year should be
made.

9-18
Pro Forma Income Statement, (Sample)

9-19
 Pro Forma Cash Flow

 Projected cash available calculated from projected cash

accumulations minus projected cash disbursements.
 Cash & profit are not the same (Difference between a Company’s
total revenue & its total expense)
 Cash is the money that is free & readily available to use in a
business
 Sales may not be regarded as cash.
 Use of profit as a measure of success for a new venture may be
deceiving.
 If disbursements are greater than receipts in any time period the
entrepreneur must either borrow funds or have cash in bank account to
cover the higher disbursements
 Cash flow statement is based on best estimates.

9-20
9-21
Pro Forma Balance Sheet

9-22
Pro Forma Balance Sheet, End of First Year

9-23
Pro Forma Sources of Funds

 Sources:
 Operations.
 New investments.
 Long-term borrowing.
 Sale of assets.

9-24
Break-Even Analysis
Break-even: volume of sales where the venture neither makes a profit nor incurs a
loss.
Break-even sales point indicates the volume of sales needed to cover total variable
and fixed expenses.

9-25
Other factors which can work as
performance indicators
 Payback Period
 Current Ratio
 Debt ratio
 Return on Assets (ROA)
 Asset Turnover ratio
 Return on Investment (ROI)

9-26
9-27
 Chapter 11
Sources of Capital
Hisrich
Peters

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Shepherd
Debt or Equity Financing

 Debt financing - Obtaining borrowed funds

for the company.
 Asset-based financing; requires some asset to
be used as a collateral.
 Borrowed funds plus interest need to be paid
back.
 Equity financing - Obtaining funds for the
company in exchange for ownership.
 Does not require collateral.
 Offers investors some form of ownership
position.
11-2
Debt or Equity Financing (cont.)

 Factors affecting the type of financing:

 Availability of funds.
 Assets of the venture.
 Prevailing interest rates.

 In some cases, the financing may be entirely provided by the owner,

such as in a small ice cream stand or pushcart in the mall or at a
sporting event.
 Larger ventures may require multiple owners, including private
investors and venture capitalists. This funding can provide the basis
for debt funding, which together make up the capital structure of
the venture.

11-3
11-4
Internal or External Funds

 Internally generated funds are most

frequently employed; sources include:
 Profits.
 Sale of assets and little-used assets.
 Accounts receivable. (Collecting bills)
 Short-term internal source of funds:
 Reducing short-term assets - inventory, cash.
 Extended payment terms from suppliers.

11-5
Internal or External Funds (cont.)

 Criteria for evaluating external sources of

funds:
 Length of time the funds are available.
 Costs involved.
 Amount of company control lost.

11-6
Personal Funds
 Least expensive funds in terms of cost and control.
 Typical sources of personal funds:
 Savings.
 Mortgage on a house or car.
 The entrepreneur’s level of commitment is reflected in the
percentage of total assets that the entrepreneur has
committed.

Entrepreneurs should always remember that it is not the

amount of the capital but rather the fact that all the money
available are committed that makes outside investors feel
comfortable with their commitment level and therefore more
willing to invest

11-7
Family and Friends

 Likely to invest due to relationship with

entrepreneur.
 Advantages - Easy to obtain money; more
patient than other investors.
 Disadvantage - Direct input into operations of
venture.
 A formal agreement must include:
 Amount of money involved.
 Terms of the money.
 Rights and responsibilities of the investor.
 Steps to be taken incase business fails.
11-8
Commercial Banks
 Commercial banks are by far the source of short-term funds
most frequently used by the entrepreneur when collateral is
available.
 Types of Bank Loans (Asset-based)
 Accounts receivable loans-For those creditworthy
customers, a bank may finance up to 80 per cent of the
value of their accounts receivable.
 Inventory loans - finished goods inventory can be
financed for up to 50 per cent of its value.
 Equipment loans - When new equipment is being
purchased or presently owned equipment is used as
collateral, usually 50 to 80 per cent of the value of the
equipment can be financed depending on its salability.
 Real-estate loans- obtained to finance a company’s
land, plant, or another building, often up to 75 per cent of
its value.

11-9
 Cash flow financing (Conventional bank loans)

 Installment loans- Installment loans can also be obtained by a

venture with a track record of sales and profits. These short-
term funds are frequently used to cover working capital needs
for a period of time, such as when seasonal financing is needed.
These loans are usually for 30 to 40 days.

 Long-term loans - These loans (usually available only to

strong, mature companies) can make funds available for up to
10 years. (Depending on country policies)
 Character loans - When the business itself does not have the
assets to support a loan, the entrepreneur may need a character
(personal) loan.

11-10
Commercial Banks (cont.)

 Bank Lending Decisions

 Based on quantifiable information and subjective
judgments.
 Decisions are made according to the five Cs of
lending- Character, Capacity, Capital, Collateral,
and Conditions.
 Review of past financial statements and future
projections.
 Questions are asked regarding ability to repay
the loan.

11-11
• Does the entrepreneur expect to use the loan for an extended period
of time?
• If problems occur, is the entrepreneur committed enough to spend the
effort necessary to make the business a success?
• Does the business have a unique differential advantage in a growth
market?
• What are the downside risks?
• Is there protection (such as life insurance on key personnel and
insurance on the plant and equipment) against disasters?

The answers to these questions and the analysis of the company’s

records allow the loan officer to assess the quantitative aspects of the
loan decision, plus the intuitive factors, particularly the first two Cs—
character and capacity—are also taken into account.

11-12
Role of the SBA in Small-Business
Financing
 When the entrepreneur is unable to secure a regular
commercial bank loan, an alternative is a guaranty from the
Small Business Administration (SBA).

 The Small Business Administration (SBA) is primarily a

guarantor of loans made by private and other institutions.
 Proceeds can be used for:
 Working capital.
 Machinery and equipment.
 Furniture and fixtures.
 Land and building.
 Leasehold improvements. (Upgrading/fixing)

11-13
Research and Development
Limited Partnerships
 Research and development limited partnerships
are another possible source of funds for
entrepreneurs in high-technology areas. This
method of financing provides funds from investors
looking for tax shelters.

 R&D limited partnerships are particularly good

when the project involves a high degree of risk and
significant expense in doing the basic research and
development, since the risks, as well as the
resulting rewards, are shared.

11-14
Research and Development
Limited Partnerships (cont.)
 Procedure
 Funding stage - Establishment of contract;
investment of money; documentation of terms
and conditions, and scope of research.
 Development stage - Sponsoring company
performs actual research.
 Exit stage - Commences when technology is
successfully developed; sponsoring company
and the limited partners commercially reap the
benefits through either equity partnerships,
royalty partnerships, or joint ventures.

11-15
Research and Development
Limited Partnerships (cont.)
 Benefits:
 Provides funds with a minimum amount of
equity dilution.
 Reduces the risks involved.
 Strengthens sponsoring company’s financial
statements.
 Costs:
 Spending of time and money.
 Restrictions placed on technology can be
substantial.
 Exit from the partnership may be too complex.
11-16
 Other Funding sources
Sources of Long-term Finance
I. Borrowing from the issue of corporateIV. Borrowing from Agencies & Companies
securities
a. Ownership Securities
i. Equity Shares
ii. Preference Shares
b. Creditorship securities
i. Debentures
ii. Bonds
II. Institutional Borrowings:
i. Industrial Development Banks
ii. Small Business Finance Companies
iii. Commercial Banks
iv. Trust Companies
v. Insurance Companies
vi. Factoring Companies
vii. National Companies
viii. Commercial Finance Companies
ix. Venture capitalists
x. Leasing Finance Companies
xi. Investment Bankers
III. Borrowing from Funds & Associations i. Call Deposits
i. Mutual Funds
ii. Pension Funds
iii. Savings & Loan Associations
iv. Investment Clubs
v. Credit Unions
Sources of Short-term Finance
i. Equipment Suppliers
ii. Family investment Firms
iii. Financial consultancy firms
iv. Micro Finance NGOs
v. Industrial Foundations
vi. Tax Exempt Foundations
vii. Charitable Foundations
viii. Veteran Administration
ix. Industrial Development Corporations
V. Borrowing from Individuals
i. Inherited Funds
ii. friends and relatives
iii. Customers
iv. Employees
vi. Companies
vii. Neighbors and Acquaintances
viii. Partners
ix. Public Deposits
VI. Inter Corporate Deposits
ii. Three month Deposits
iii. Six month Deposits
11-17
Important links and websites for
source of financing in Bangladesh
 https://bida.gov.bd/
 https://idlc.com/aml/Venture-
Capital/public/
 https://www.bdangels.co/
 https://www.bb.org.bd/fnansys/mfi.php
 Brac
 Grameenbank
 ASA
 Proshika
11-18
Strategies and Managing the
Implications of Growth and
Accessing Resources for
Growth from External
Sources

Chapter 13 & 14
Growth Strategies Based upon Knowledge
of Product and/or Market
 Growth Strategies
• Penetration Strategy
– A strategy to grow by encouraging existing customers to buy
more of the firm’s current products.
– Marketing can be effective in encouraging frequent repeat
purchases.
The market penetration strategy can be executed in a number
of ways:
• Decreasing prices to attract new customers
• Increasing promotion and distribution efforts
• Acquiring a competitor in the same marketplace
• For example, telecommunication companies all cater to the
same market and employ a market penetration strategy by
offering introductory prices and increasing their promotion
and distribution efforts.
 Growth Strategies (cont’d)
• Market Development Strategies
– Strategy to grow by selling the firm’s existing products to
new groups of customers.
The market development strategy may involve the
following approaches:
• Catering to a different customer segment
• Entering into a new domestic market (expanding
regionally)
• Entering into a foreign market (expanding
internationally)
• For example, sporting goods companies such as Nike
and Adidas recently entered the Chinese market for
expansion.
 Growth Strategies (cont’d)
• Product Development Strategies
– A strategy to grow by developing and selling new products to people
who are already purchasing the firm’s existing products.
This strategy, too, may be implemented in a number of ways:
• Investing in R&D to develop new products to cater to the existing
market
• Acquiring a competitor’s product and merging resources to create a
new product that better meets the need of the existing market
• Forming strategic partnerships with other firms to gain access to
each partner’s distribution channels or brand
• For example, automotive companies are creating electric cars to
meet the changing needs of their existing market. Current market
consumers in the automobile market are becoming more
environmentally conscious.
 Growth Strategies (cont’d)
• Diversification Strategies
– A strategy to grow by selling a new product to a
new market.
– Backward integration - A step back (up) in the
value-added chain toward the raw materials.
– Forward integration - A step forward (down) in the
value-added chain toward the customers.
– Horizontal integration - Occurs at the same level
of the value-added chain but simply involves a
different, but complementary, value-added chain.
Example of a Value-Added Chain and Types of
Related Diversification
 Implications of Growth for the Firm

• Pressures on Existing Financial Resources

– Firm’s resources can become stretched quite thin.
• Pressures on Human Resources
– Problems of employee morale, employee burn
out, and an increase in employee turnover.
 Overcoming Pressures on
Existing Financial Resources - Financial
Control
• Managing Cash Flow
– The entrepreneur should have an up-to-date
assessment of the cash position.
– A daily cash sheet would provide an effective
indication of any daily shortfall and of problems or
errors that might have occurred.
– Compare budgeted or expected cash flows with
actual cash flows.
 Financial Control (cont’d)

• Managing Inventory
– Perpetual inventory systems can be structured
using computers or a manual system.
– To check the inventory balance, it may be
necessary to physically count inventory
periodically.
– Link the needs of a retailer with the wholesaler
and producer allowing for a fast order entry and
response.
– Transport mode selection can also be important.
 Financial Control (cont’d)

• Managing Fixed Assets

– Generally involve long-term commitments and large
investments for the new venture.
– Equipment will require servicing and insurance and
affect utility costs; will also depreciate over time.
– Leasing can be an alternative to buying depending on:
• Terms of the lease.
• Type of asset.
• Usage demand.
– Lease payments can be used as a tax deduction.
 Financial Control (cont’d)

• Taxes
– Withhold federal and state taxes for employees.
– Pay a number of taxes (state and federal
unemployment taxes and business taxes).
– Allocate taxes as part of any budget.
– File end-of-year returns of the business.
– Consider use of a tax accountant.
 Financial Control (cont’d)

• Record Keeping
– It is helpful to consider using a software package.
– It may be necessary to enlist the support and
services of an accountant/ consultant.
– It is important to use a system for storing and
using customer information.
– Build organizational knowledge to reduce
dependency on any one individual.
 Overcoming Pressures on Existing Human
Resource

• Some entrepreneurs are using professional

employer organizations (PEOs) for various HR
activities.
• Decisions regarding the proportion of permanent
and part-time employees should be made.
• Give employees regular feedback; identify
problems along with a proposed solution.
• Maintain the corporate culture despite the arrival
of new employees.
 Overcoming Pressures on Existing Human
Resource (cont’d)

• Activities to institute a more participative style

of management:
– Establish a team spirit.
– Communicate with employees.
– Provide feedback.
– Delegate responsibility to employees.
– Provide continuous training for employees.
 Overcoming Pressures on Existing Human
Resource (cont’d)

• Basic Principles of Time Management

– Principle of desire - A recognition of the need to
change personal attitudes and habits regarding
the allocation of time.
– Principle of effectiveness - A focus on the most
important issues.
– Principle of analysis - Understanding how time is
currently being allocated, and where it is being
inefficiently invested.
 Overcoming Pressures on Existing Human
Resource (cont’d)

– Principle of prioritized planning - Categorization of

tasks by their degree of importance and then the
allocation of time to tasks based on this
categorization.
– Principle of reanalysis - Periodic review of one’s
time management process.
 Using External Parties to Help Grow a Business

• Some of the mechanisms entrepreneurs can

use are:
– Joint ventures.
– Acquisitions.
– Mergers.
– Franchising.
 Joint Ventures
• A separate entity that involves a partnership
between two or more active participants.
• Types of Joint Ventures:
– Between private-sector companies.
• Objectives - Entering new/ foreign markets, raising
capital, cooperative research, etc.
– Industry–university agreements.
• Created for the purpose of doing research.
– International joint ventures.
 Joint Ventures (cont’d)
• Factors in Joint Venture Success:
– The accurate assessment of the parties involved to
best manage the new entity.
– The degree of symmetry between the partners.
– The expectations of the results of the joint
venture must be reasonable.
– The timing must be right.
 Acquisitions
• The purchase of an entire company, or part of a
company; the company no longer exists
independently.
• Advantages of an Acquisition
– Established business.
– Location.
– Established marketing structure.
– Cost.
– Existing employees.
– More opportunity to be creative.
 Acquisitions (cont’d)
• Disadvantages of an Acquisition
– Marginal success record.
– Overconfidence in ability.
– Key employee loss.
– Overvaluation.
• Synergy
– “The whole is greater than the sum of its parts.”
– Synergy should occur in both the business concept
and the financial performance.
 Acquisitions (cont’d)
• Structuring the Deal
– Involves the parties, the assets, the payment form,
and the timing of the payment.
– Two most common means of acquisition:
• Entrepreneur’s direct purchase of stock or assets.
• Bootstrap purchase of assets.

• Locating Acquisition Candidates

– Brokers, accountants, attorneys, bankers, business
associates, and consultants may know of candidates.
– Business opportunities in newspapers or trade
magazines.
 Acquisition - Leveraged Buyout

• An entrepreneur (or any employee group) uses

borrowed funds to purchase an existing venture
for cash.
– Long-term debt financing is provided by banks,
venture capitalists, and insurance companies.
– Acquired firm’s assets serve as collateral.
• Evaluation procedure:
– Determine whether the asking price is reasonable.
– Assess the firm’s debt capacity.
– Develop the appropriate financial package.
 Franchising

• An arrangement whereby the manufacturer or

sole distributor of a trademarked product or
service gives exclusive rights of local distribution
to independent retailers in return for their
payment of royalties and conformance to
standardized operating procedures.
– The person offering the franchise is known as the
franchisor.
– The franchisee is the person who purchases the
franchise.
 Franchising (cont’d)

• Advantages of Franchising—to the Franchisee

– Product acceptance - Has an accepted name, product,
or service.
– Management expertise - Managerial assistance
provided by the franchisor.
– Capital requirements - Up-front support can save
entrepreneur significant time and capital.
– Knowledge of the market - Offers experience in
business and market.
– Operating and structural controls – Helps in
standardization and administrative controls.
What You May Buy in a Franchise
 Franchising (cont’d)

• Advantages of Franchising—to the Franchisor

– Expansion risk
• Allows venture to expand quickly using little capital.
• Business can be expanded nationally and even
internationally.
– Cost advantages
• Supplies can be purchased in large quantities to achieve
economies of scale.
• Ability to commit larger sums of money to advertise.
 Franchising (cont’d)

• Disadvantages of Franchising – to the

franchisee
– Inability of the franchisor to provide services,
advertising, and location.
– Franchisor’s failing or being bought out by another
company.
– Difficulty in finding quality franchisees.
– The ability to maintain tight control over
franchises becomes difficult as their number
increases.
 Succession Planning and
Strategies for Harvesting and
Ending the Venture
Chapter 15
 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.
Succession of Business
 Succession of Business (cont’d)

• Transfer to Family Members

– Role of owner - full-time/part-time/retire.
– Income for working family members and
shareholders.
– Transition business environment.
– Treatment of loyal employees.
– Tax consequences.
 Succession of Business (cont’d)

• Transfer to Nonfamily Members

– Train a key employee and retain some equity.
– Retain control and hire a manager.
– Sell the business outright.
 Options for Selling the Business

• Direct Sale
– Strategies to be considered:
• Focus on a narrow, well-defined segment.
• Control costs and focus on higher margins and profits.
• Get all financial statements in order.
• Prepare a management documentation.
• Assess the condition of capital equipment.
• Get tax advice.
• Get nondisclosures from key employees.
• Try to maintain a good management team.
• Prepare and plan in advance.
Options for Selling the Business (cont’d)

– An important consideration is the type of payment

the buyer will use.
– Business brokers may be helpful.
– The best way to communicate the business to
potential buyers is through the business plan.
– The role of an entrepreneur may vary depending
on the sale agreement or contract with the new
owner(s).
 Options for Selling the Business (cont’d)

• 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.
– Sale of a venture can be:
• For cash.
• Financed through banks
 Bankruptcy—An Overview (cont’d)

• 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.
 Bankruptcy—An Overview (cont’d)

• Bankruptcy Act of 1978 (with amendments

added in 1984 and 2005) ensures:
– Fair distribution of assets to creditors.
– Protection of debtors from unfair reduction of
assets.
– Protection of debtors from unfair demands by
creditors.
 Reorganization (cont’d)

– Maintain good records.

– Understand how protection against creditors
works.
– Transfer lawsuit to bankruptcy court.
– Prepare a realistic financial reorganization plan.
 Extended Time Payment Plans

• Individual creates a five-year repayment plan

under court supervision.
• A court appointed trustee receives money
from debtor.
– Bears responsibility for making scheduled
payments to all creditors.
 Liquidation

• The most extreme case of bankruptcy.

• Voluntary bankruptcy - Entrepreneur’s
decision to file for bankruptcy.
– Courts will require a current income and expense
statement.
• Involuntary bankruptcy - Petition of
bankruptcy filed by creditors without consent
of entrepreneur.
Requirements for Keeping a New Venture Afloat
Warning Signs of Bankruptcy
 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.
– Stronger business skills.
• Business failure does not have to be a stigma
 The Reality of Failure

• Important considerations for the entrepreneur

in case of failure:
– Consult with family.
– Seek outside assistance from professionals,
friends, and business associates.
– Do not hang on to a venture that will continually
drain resources.
 Social Business

The content of this lecture is

borrowed from a presentation by
Prof. Muhammad Yunus
 What is a Social Business?
• A “non-loss, non-dividend” providing a
solution to social problem.
• “Social business unites the dynamism of
traditional business with the social conscience
of charity” – Prof. Yunus.
• In principle, social businesses can help address
all or most social issues.
NGO, Social and Traditional
 Six Principles of Grameen Social Business

1. Business objective will be to overcome

poverty, or one or more problems (such as
education, health, technology access, and
environment) which threaten people and
society; not profit maximization
2. Financial and economic sustainability
3. Investors get back their investment amount
only. No dividend is given beyond investment
money.
 Six Principles of Grameen Social Business (cont’d)

4. When investment amount is paid back,

company profit stays with the company for
expansion and improvement.
5. Environmentally conscious
6. Workforce gets market wage with better
working conditions
7. ….. do it with joy.
 Types of organization
• Social businesses are typically incorporated as limited
companies or another legal form with well-defined
ownership rights
• However, these social businesses can be initiated or
operated by:
– Individual entrepreneurs
– Private companies
– NGOs
– Foundations
– Governments
• Existing entities can also be converted into social
businesses
 Example Sectors
• Healthcare • Renewable Energy
• Nutrition • Education and
• Microfinance and Training
insurance • Environment
• Housing • Empowerment of
• Water and Sanitation women
• Access to IT and • Children’s welfare
telecoms • Welfare of the elderly
Growth of Social Business