Ch. 15-kuratko quiz

The Oakland Scavenger Company 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

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

forcing events

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

innovative

Most privately held firms

lack a succession plan

In a survey of 1,000 business owners, which of the following was a motivation for an entrepreneur to sell a venture?

a desire for liquidity

T/F: Only 10 percent of all privately held enterprises make it to a third generation.

false

Which of the following statements about seeking legal advice with respect to succession planning is true?

legal advice is not critical but beneficial

Which of the following is not considered a step in the harvest strategy?

look for a new venture to start up

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

managerial

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

Which of the following steps should be carried out second when deciding to sell a business?

segregate the assets

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

the skills specifically required by the business are developed

The harvest decision may come when the venture has grown to a stage where an initial public offering (IPO) is a possibility.

true

Research shows that many privately held firms go out of business within _____ year(s).

10

Which of the following is not one of the four strategies that can be used in preparing a management succession policy?

The owner's family controls the management continuity strategy entirely

T/F: Nonfamily employees sometimes put pressure on the owner/manager in an effort to protect their personal interests.

True

Which of the following statements about the characteristics that successors should possess is true?

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

T/F: Family members who do not play an active role in the business may still want to inherit part of the business.

true

T/F: Loss of ownership control is often attributable to one of the "Four Ds": disability, death, dissolution, and debtorship.

true

T/F: Only 3 out of 10 privately held firms survive into a second generation.

true

T/F: Some entrepreneurs are easy to replace, and some cannot be replaced.

true

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

true

Research on family firms demonstrates which of the following facts?

only 16 percent make it to a third generation

Which of the following is not an example of pressures or interests from within a firm that affect succession issues?

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

T/F: Sometimes a successor is needed because the business environment changes and a parallel change is needed at the top.

True

T/F: It is not necessary for the entrepreneur to seek professional advice and legal counsel when liquidating the firm

false

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

false

Which of the following is an influencing factor in succession?

family and business cultural ideas

The first source for succession often is

family and in-house personnel

In the initial public offering (IPO) process, which of the following discloses all of the company's pertinent information and presents a fair representation of the firm's true prospects?

prospectus

T/F: 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

T/F: The steps in developing a succession strategy are understanding the contextual aspects, identifying successor qualities, and developing a written succession plan.

true

T/F: There are two types of succession pressures: family members and nonfamily employees.

true

T/F: 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 nonfamily members.

true

T/F: A buy/sell agreement can be used to make certain that funds are available to purchase the ownership interest.

true

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

True

T/F: The liquidity event can be achieved through an initial public offering (IPO) or complete sale of the venture.

True

A typical example of a forcing event is a(n)

a mental breakdown

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

A harvest plan

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

A key aspect to be considered in an effective succession is the

entrepreneur's vision

T/F: A harvest plan defines how and when owners and investors will realize an actual cash return on their investment.

true

T/F: 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

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

true

The average life expectancy of a privately held business is _____ years.

24

The managerial successor typically is not interested in

creativity

The Oakland Scavenger Company case resulted in a(n)

out of court settlement

The idea of "selling out" should be viewed in a _____ sense.

positive

A written succession strategy

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

When selling a business, which of the following is not good advice?

sell when profits are low

T/F: A managerial successor provides the critical ideas for new-product development and future ventures.

false

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.

T/F: 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

T/F: An important issue in the Oakland Scavenger Company case was that of whether nonfamily members should be allowed to be successors in family businesses.

false

T/F: Harvest strategies rarely involve the complete sale of a business.

false

"Harvest" does not mean that

he challenges and responsibilities of the entrepreneur are over.

Succession pressure inside the firm exists

if family members want to keep and manage the business themselves

Which of the following is not a suggestion a tax accountant or lawyer might make concerning tax reduction?

increase manager's salaries and reduce fringe benefits

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

tax implications

Which of the following is a source of pressure outside the family that could prove troublesome?

tax rate