This document discusses various topics related to business ventures including reasons for business failure, types of business ownership, identifying sick businesses, the importance of MSMEs, bankruptcy and liquidation, winding up companies, reviving sick companies, and exit strategies for entrepreneurs. Specifically, it outlines five common reasons for business failure and five precautions business owners can take to avoid failure. It also defines bankruptcy as a legal process providing debt relief and liquidation as ending a business and distributing assets to pay creditors.

1. ENTREPRENEURSHIP DEVELOPMENT – KMB 402
Topic: Revival, Exit and End to a Venture
(Part 1 of 2)
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

2. Understand the reasons for failure of businesses and the
precautions that need to be taken to avoid business failure
Reasons
1. Lack of experience
2. Poor business location
3. Unable to compete against market
leaders
4. Inability to control expenses
5. Lack of strategic and effective
leadership
Precautions
1. Developing a workable and strong
business plan
2. Avoidance of high debt
3. Selecting strategic business location
4. Proper control of cashflows
5. Keep your customer at the heart of
the business and deliver value
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

3. Learn about the categories into which businesses
ownership can be broadly classified.
Various forms of Business Ownership
1. Sole Proprietorship
2. Partnership
3. Company
i. Private Company
ii. Public Company
4. Cooperative
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

4. Knowing about the major criteria to identify a sick unit
and the classification of sick business.
• Sick industrial unit is defined as a unit or a business or company
(having been in existence for not less than five years) which is found
at the end of any financial year to have incurred accumulated losses e
• According to studies the indicators of sickness in SSIs include failure
to pay statutory liabilities like Provident Fund and Employee State
Insurance (ESI) contributions, failure to pay timely instalment of
principal amount and interest amount on loans taken from financial
institutions and through public deposits equal to or exceeding its
entire net worth.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

5. Sickness in industry can be classified into:
(a) Genuine sickness which is beyond the control of the promoters of the concern
despite the sincere efforts by them,
(b) Incipient sickness due to basic non-viability of the project, and
(c) Induced sickness which is due to the managerial incompetence and wrong
policies pursued deliberately for want of genuine stake. This is a man-made
sickness in which some unscrupulous promoters adopt fraudulent practices to start
a concern and to get away with the money obtained by fraud and deceit.
The FICCI study entitled ‘Industrial Sickness — Dimensions and Perspectives’ says
that the causes of sickness are both internal and external, often operating in
combination. The external factors are government policies on pricing, duties, taxes,
high interest rates, taxes on profit, slackness in demand, sluggishness in export
markets, high labour cost, inadequate availability of inputs, lack of infrastructure
and the like. The internal factors which contribute to sickness are wrong planning
in relation to location, technology, capital cost, technological obsolescence,
management deficiencies and industrial unrest.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

6. Knowing MSME - Micro, Small and Medium Enterprises
and large companies and their relevance.
Relevance
• Employment generation
• Production
• Export contribution
• Optimum utilisation of resources
• Increasing GDP
• Balancing Economy
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

7. Understand what is meant by bankruptcy and
liquidation.
Bankruptcy
Bankruptcy is a legal process through
which people or other entities who
cannot repay debts to creditors may
seek relief from some or all of their
debts. In most jurisdictions, bankruptcy
is imposed by a court order, often
initiated by the debtor.
Liquidation
Liquidation in finance and economics is
the process of bringing a business to an
end and distributing its assets to
claimants. It is an event that usually
occurs when a company is insolvent,
meaning it cannot pay its obligations
when they are due. As company
operations end, the remaining assets
are used to pay creditors and
shareholders, based on the priority of
their claims.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

8. The ways in which a company can be wound up
Winding up is the process of dissolving a company. While winding up,
a company ceases to do business as usual. Its sole purpose is to sell off stock, pay
off creditors, and distribute any remaining assets to partners or shareholders.
Winding up is a means by which the dissolution of a company is brought about and
its assets are realised and applied in the payment of its debts. After satisfaction of
the debts, the remaining balance, if any, is paid back to the members in proportion
to the contribution made by them to the capital of the company
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

9. The process of reviving a sick company
The Ministry of Corporate Affairs has formulated the framework for Revival and
Rehabilitation of Sick Companies under the Companies Act. This framework intends to
timely detect the sickness and take appropriate measures for revival of sick companies.
First evaluation of sick companies is done on the basis of profitability and sales being
projected. After that loan installments and concession on interest are provided to the sick
companies to help them to overcome the condition.
As per Insolvency and Bankruptcy Code, 2016 requirements for revival of sick companies
are as following:
• The company should be able to turn around profits in given time frame.
• Concessions and reliefs given to a sick company will be for only for seven years.
• Time given to re pay debts and re-structured loans is ten years.
• Debt service coverage ratio should be minimum 1.33.
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW

10. Exit strategies for an Entrepreneur
Meaning
A business exit strategy is
an entrepreneur's strategic plan to sell
his or her ownership in a company to
investors or another company. An exit
strategy gives a business owner a way
to reduce or liquidate his stake in
a business and if the business is
successful, make a substantial profit.
Business Exit Strategies
• Initial Public Offering (IPO)
• Mergers & Acquisitions
• Shares Buy Back
• Sale to other Strategic Investor
• Sale in OTC Market
• Management Buyout (MBO)
• Transfer Ownership to Family
ACHLA TYAGI, ABES EC (032), AKTU, LUCKNOW