TABLE OF CONTENTS

The Simulation: an Introduction | Vision and Corporate Design | Decision Variables | The Contracts Program
The Market Reports | Firm Reports: Credit, Sales & Production | Firm Reports: Financial Statements
The Scent Industry | Plant and Location  | Subsidiaries | Bankruptcy | Forecasting Demand | NPV | Broker

With luck you will never need this final chapter. Bankruptcy is something which all firms hope to avoid. Unfortunately this is not always possible. Decision entry mistakes, tough competition, mismanaged finances and other factors can all drive a firm into bankruptcy. This chapter will help you to figure out whether you are in danger of bankruptcy and what actions you can take to salvage your firm. Sometimes it is best to abandon a sinking firm and start fresh with your hard earned knowledge.

When you have lost 100% of the stockholder's value, your firm is considered bankrupt. More precisely, when your negative retained earnings account plus your bond discount account equals the sum of the common stock account plus the Paid in Capital account, your team has lost 100% of the stockholder's investment (in other words, when equity equals zero).

When this occurs, your firm is owned wholly by creditors. Do not let such an event happen.

If large losses continually erode your stockholder's investment, consult with your instructor. Many options exist. Some of those follow:

1. Issue more stock. Any time you issue stock, you must give public notice. All investors must be warned.

2. Search the balance sheet for assets that can be liquidated. Take the resulting cash and pay off the most expensive debt. Liquidate accounts receivable by factoring. Do not order raw material futures (except for a two week supply). Make an effort to sale out finished goods. Perhaps liquidate some plant hours. These actions trim the assets and create a leaner corporation.

Consider using the Contracts program to sell unused plant hours, an overstock of finished goods, raw materials, etc... Contracts can be especially helpful for those firms who have made a data entry error.

While the above will lower interest costs and improve profitability, the firm must still become competitive in the market to survive in the long run.

3. Seek a consulting partnership with a successful firm. Perhaps they will agree to payment only if and when profits reach a predetermined level.
 

4. Enlist the aid of Venture Capitalists. Venture Capitalists Inc. can be reached through your professor. These investors will exchange shares of stock for debt in a private off-line deal. They will NOT consider requests for other arrangements. Consider this your last line of defense.
 

5. Abandon the sinking ship; say so long, bye-bye! This will be a traumatic event for the team and for each team member. Human resource management must be applied to your best ability. Remorse and depression can only be a momentary event. The team must pick itself up and start a new venture.

To close an existing firm and start another, your firm must have permission from your instructor. Once permission is secured, a new firm and password will be issued. Securing permission from your instructor for a firm closing and the opening of a new firm usually requires a grade concession or extra work agreements (such as a major paper on why the firm failed).

Should you let the firm die? The answer is, sometimes. Most firms that find themselves in trouble can eventually work themselves out of it. The team needs to pull together and work harder. Most severe problems come about because members of the team failed to read the manual. The manual requires at least two readings (one of them using a calculator to confirm figures). The other major reason for bankruptcy is failed human resource management.

If you have a team not working together or at all, and members have not read and mastered the manual (no small task), then survival will be a major challenge. This simulation is very much like the "real world". There will be numerous, well organized, well financed teams that also have mastered the manual. They will not cut your team any slack. They are serious professional competitors that will see and seize the opportunity created by a firm going bankrupt. Perhaps you can use them as consultants. However, there are some teams in every simulation that seem to be well read, funded, organized, and they are out prowling for victims instead of trying to make a dollar serving the consumer. They may appear as a life boat to your drowning team, while in fact they are cruising your way simply to pluck off your life jackets!

If your firm's difficulty is one of human resource management, you might consider moving employees around. If it is early enough in the simulation and your firm is still doing well, you might consider opening a subsidiary to allow differing opinions room to explore. Another option is to relocate one or two executives to another team and attempt to hire new executives onto your team. You should have instructor approval before attempting any team switching.