ch 15

A reason for an entrepreneur to sell a venture is

boredom. lack of capital. age and health.

Happenings that cause the replacement of the owner-manager of a family business are called

forcing events.

Meeting with potential buyers

helps in the negotiation of major requirements.

An entrepreneurial successor is someone who

is ingenious, creative, and driven

Which of the following is an event that would require an entrepreneur to step aside and let someone else direct the operation? nonterminal physical incapacitation divorce age disagreements with children or business partners

nonterminal physical incapacitation

Which of the following steps should be carried out third when deciding to sell a business? Publicize the offer to sell. Value the business. Finalize the prospective buyers. Time the sale appropriately.

Value the business.

The Oakland Scavenger Company case resulted in

an out-of-court settlement.

When the founder of a business is willing to share authority, succession problems can be maximized.

false

A type of successor who is interested in efficiency, internal control, and effective use of resources would be considered a(n)

managerial successor.

Research on family firms demonstrates which of the following facts?

only 16 percent make it to a third generation

The entrepreneur who has to choose a successor with potential to develop the attributes necessary to run the business should consider which of the following aspects over the others?

the potential successor's drive and resourcefulness

A harvest plan defines how and when the owners and investors will realize an actual cash return on their investment.

true

Only three in ten privately held enterprises make it to a second generation.

true

The forcing events that require an entrepreneur to step aside and let someone direct the operation are usually unforeseen and create major problems for the business.

true

The harvest decision may come when the venture has grown to a stage where an IPO is a possibility.

true

The liquidity event can be achieved through an IPO or selling out.

true

The liquidity event stands for positioning the venture for the realization of a cash return for the owners and investors.

true

The prospectus for an initial public offering (IPO) must disclose fully all pertinent information about a company and must present a fair representation of the firm's true prospects.

true

The steps in developing a succession strategy are understanding the contextual aspects, identifying successor qualities, and carrying out the succession plan.

true

There are two types of succession pressures: family and non-family.

true

When looking ahead in choosing a successor from inside the organization, the founder often trains a team of executive managers consisting of both family and non-family members.

true

Which of the following is not a step in developing a succession strategy? identifying successor qualities carrying out the succession plan undertaking forcing events understanding contextual aspects

undertaking forcing events

Succession pressure inside the firm exists

when family members want to keep and manage the business.

Research shows that many privately held firms go out of business within

10 years

The average life expectancy of a privately held firm is

24 years

Which of the following is not a suggestion a tax accountant or lawyer might make concerning tax reduction? Place real estate in a separate corporation. Increase management's salaries and fringe benefits. Establish a leasing subsidiary. Give some or all of the owner's shares to heirs.

Increase management's salaries and fringe benefits.

Which of the following is not considered a step in the harvest strategy? Looking for new venture to start up. Publicizing the offer to sell. Valuing the business. Segregating assets.

Looking for new venture to start up.

Which of the following is a true statement about seeking legal advice with respect to succession planning? Legal advice is seldom beneficial. Legal advice from an advisor who understands succession issues is always crucial. It is seldom crucial for legal advisors to design a plan for succession. The more you pay, the better the advice.

The more you pay, the better the advice.

One advantage of an early-entry strategy for the younger generation succeeding the older generation of a family business is

skills specifically required by the business are developed.

When considering financial difficulties, which of the following statements constitutes a forcing event?

A lender demands the removal of an owner-manager before lending the necessary funds.

Outside help in succession planning should be considered when

the entrepreneur's ego gets in the way of a succession plan

The textbook identifies which of the following as a key aspect to be considered in an effective succession?

the entrepreneur's vision

Timing considerations generally do not impact decisions to sell a business because triggering events are unanticipated.

false

Which is an influencing factor in succession?

family and business cultural issues

Which of the following is not an example of pressures or interests from within a firm that affect succession issues? rivalry among various branches of the family pressure from a family member to start his/her own business employee wanting a percentage of the business in the owner's will pressure on the owner/manager to designate an heir

pressure from a family member to start his/her own business

When selling a business all of the following is good advice except: sell when the timing is right sell when sales are peaking sell when profits are low. sell when inventory is high.

sell when profits are low.

The Oakland Scavenger case may have a major effect on the management succession plans of family business.

true

The basic rule for privately held businesses is this: The owner should develop a succession plan.

true

Some entrepreneurs are easy to replace, and some cannot be replaced.

true

The idea of selling out should be viewed in

a positive sense.

Non-family members sometimes bring pressure on the owner-manager in an effort to protect their personal interests.

true

One of the most recent legal challenges to management succession came from the

Oakland Scavenger Company case.

Promotion from within is

a morale-building philosophy.

Barriers to successful succession planning, discussed in the text, include which of the following? nobody wanting to own the firm. lack of a final will. dilemma of choice. lack of profits.

dilemma of choice.

One of the most recent legal challenges to management succession has charged

employment discrimination.

Once the decision is made to harvest the business, the way forward is easy.

false

Only ten percent of all privately held enterprises make it to a third generation.

false

Most privately held firms

lack a succession plan.

One advantage of the delayed-entry strategy for the younger generation succeeding the older generation of a family business is that

a successor's skills are judged with greater objectivity.

Each of the following are non-family elements under pressure and interest from outside the firm except increased insurance rates. the competition changing strategy. regulatory agencies. customers.

increased insurance rates.

Besides the eight steps in the harvest strategy, the other implications that the entrepreneur should be aware of when selling out are

tax implications arising from the sale of a business.

In some cases, entrepreneurs may be in violation of the law if they employ too many family members.

true

Loss of ownership control is often attributable to one of the Four Ds: disability, death, dissolution, and debtor-ship.

true

Nepotism policies are lawful unless they have an "adverse impact" on women or minority groups (as in the Oakland Scavenger Company case).

true

Which of the following steps should be carried out second when deciding to sell a business? Publicize the offer to sell. Finalize the prospective buyers. Segregate the assets. Value the business.

Segregate the assets.

Which of the following is a true statement about the characteristics that successors should possess? There are only a few characteristics needed. Situation does not matter. Knowledge of the firm is not a desirable characteristic or quality. Some characteristics will be more important than others, depending on the situation.

Some characteristics will be more important than others, depending on the situation.

Although family members may not play an active role in the business, they still may want to inherit part of the business.

true

An exit strategy is defined as that component of the business plan where an entrepreneur describes a method by which investors can realize a tangible return on their investment.

true

Depending on the situation, some qualities or characteristics a successor should possess are more important than others.

true

Which of the following steps should be carried out last, when deciding to sell a business? Publicize the offer to sell. Segregate the assets. Time the sale appropriately. Prepare a financial analysis.

Publicize the offer to sell.

The Oakland Scavenger case is profound to owners of family businesses in that

conceivably, the owner can be sued by an employee of a different ethnic origin based upon not being accorded the same treatment as a son or daughter.

External environmental factors do not have any effect on the succession issue.

false

Harvest strategies rarely involve the complete sale of a business.

false

If the successor and the business environment have a "right fit," the successor will be minimally effective.

false

It is not necessary for the entrepreneur to seek outside advice when liquidating the firm.

false

Which of the following is not a contextual aspect to be considered in an effective succession plan? time managerial ability entrepreneurial vision cost

cost

The managerial successor typically is not interested in

creativity.

A typical example of a forcing event is

death.

A harvest plan

defines when and how business owners will realize a cash return on investment.

A written succession strategy

prepares the entrepreneur for developing a management continuity strategy and policy.

A type of successor who is high in ingenuity, creativity, and drive would be considered a(n)

entrepreneurial successor.

An entrepreneurial successor is someone who is interested in efficiency and the effective use of resources.

false

An important issue in the Oakland Scavenger case is that of whether nonfamily members should be allowed to be successors in family businesses.

false

The first source of succession often is

family and in-house personnel.

Which of the following is not a contextual aspect to be considered in an effective succession plan? technology time environmental factors type of venture

technology

"Harvest" does not mean

the challenges and responsibilities of the entrepreneur are over.

Which of the following statements about communication between the seller and buyer of a business is recommended? End communication at least ten days prior to signing a buy agreement. Communicate with sellers only through proxies. Continue communication through the transition to new ownership. End communication at the time the buy agreement is signed.

Continue communication through the transition to new ownership.

The textbook identifies four strategies that can be used in preparing a management succession policy. Which of the following is not one of these strategies? The owner's family controls the management continuity strategy entirely. The owner controls the management continuity strategy entirely. The owner works with a professional advisor on the management continuity strategy. The owner works with family on the management continuity strategy.

The owner's family controls the management continuity strategy entirely.