Ch. 15 - Succession Planning and Strategies for Harvesting and Ending

Which of the following are critical factors to be considered for an effective succession plan for a business when family members are involved? (Check all that apply.)

Income for working family members and shareholders Role of the owner in the transition stage

Identify the factors that can reduce the risk of business failure. (Check all that apply.)

Ensure relatively accurate cash projections are made. Identify stress points that can cause the business to be in danger.

Identify a true statement about the third and the last step, or principle, in a business turnaround process.

The step involves aggressive corrective action.

Entrepreneurs who usually build a business, sell it or go public, and then move on to a different idea or venture are referred to as _____.

serial entrepreneurs

An entrepreneur decides to transfer his business to his family member. How can the family member who is a successor and is in the transition stage be helped in making business decisions?

The entrepreneur can act as an advisor for the successor during the transition stage.

According to the reforms in the Bankruptcy Code that were signed into law in April 2005, the means test used to ascertain eligibility for Chapter 7 or Chapter 13 states that individuals may not file for Chapter 7 bankruptcy if _____.

their income is at or above the state income median level

If an entrepreneur files a _ _ petition under Chapter 7, it constitutes a determination that his or her venture is bankrupt.

voluntary bankruptcy

Identify a true statement about Chapter 13 bankruptcy.

A court-appointed trustee receives money from the debtor and is liable for making scheduled payments to all creditors.

_____ has become a more common and frequently used exit strategy in the current economic environment.

An entrepreneur selling out to a larger company

The _____ (with amendments added in 1984 and 2005) was devised to ensure a fair distribution of assets to creditors, to safeguard debtors from unfair depletion of assets, and to safeguard debtors from unfair demands by creditors.

Bankruptcy Act of 1978

Identify the lessons that can be learned from entrepreneurs who have experienced bankruptcy. (Check all that apply.)

Bankruptcy safeguards entrepreneurs only from creditors. Entrepreneurs should file early when they consider that their business is going to fail.

_____ necessitates a venture to liquidate, either voluntarily or involuntarily.

Chapter 7 bankruptcy

Identify the suggestions that an entrepreneur should follow for surviving bankruptcy. (Check all that apply.)

Have a clear understanding of how the protection against creditors works and what is necessary to keep it in place. Be ready to have creditors examine all financial transactions for the last 12 months.

Identify a true statement about Chapter 11 bankruptcy.

The courts try to give the venture in this situation time to pay its debts.

refers to a petition of bankruptcy filed by creditors without consent of entrepreneur.

involuntary bankruptcy

Which of the following is a stress point that an entrepreneur should be aware of when managing a venture in its early stages?

Change in the size of the venture

Bankruptcy may not always mean the termination of a business as it can offer an entrepreneur an option to reorganize under _____ or merge with another company.

Chapter 11

_____ provides the option to an entrepreneur to reorganize and make a venture more solvent.

Chapter 11 bankruptcy

Which of the following are alternative provisions provided by the Bankruptcy Act of 1978 for protecting a firm near or at a position of insolvency? (Check all that apply.)

Chapter 13 bankruptcy Chapter 11 bankruptcy Chapter 7 bankruptcy

_____ voluntarily allows individuals with regular income the chance to make extended time payments to creditors.

Chapter 13 bankruptcy

Identify a feature of the succession process in nonfamily business situations.

The process may be precisely defined in a partnership agreement and could involve a predetermined choice.

A(n) _____ refers to a two- to three-year plan to sell the business to employees.

employee stock option plan

The second principle in any successful business turnaround is that the management must _____.

have a turnaround plan created using the questions required to be addressed in a planning process

The key to enhancing the bankruptcy process is _____.

keeping creditors informed of how the business is doing

During the reorganization period, the entrepreneur can speed up the process by _____.

taking the initiative in creating a plan

In the context of succession planning in nonfamily business situations, which of the following issues should be considered in a succession plan when there are only a small number of shareholders? (Check all that apply.)

All employees should be welcomed to participate in the transition process. Senior management of the company must be committed to any succession plan.

The most common type of business bankruptcy is _____, which accounted for about two-thirds of the total in 2014.

Chapter 7

_____ is the most extreme case of bankruptcy and is in the best interests of the entrepreneur if there is no hope of recovery.

Chapter 7 bankruptcy

True or false: Entrepreneurs should plan an exit strategy at the expansion stage of their venture.

False

Identify a true statement about management buyout of a venture.

Financing the sale of the venture can be achieved through a bank, or the entrepreneur could also agree to carry the note.

Which of the following are suggestions that can be followed for survival from bankruptcy? (Check all that apply.)

Focus efforts on developing a reasonable financial reorganization plan. File before the venture exhausts cash or has no incoming revenue.

Which of the following should an entrepreneur do when managing a venture in its early stages?

The entrepreneur should set sales values that may represent key decision marks in terms of major capital investment.

Identify the internal problems that are created when a business is transferred to a family member who has not been involved in the business. (Check all that apply.)

The family member may be entrusted with the responsibility of running the business without adequate training. Employees who have been with the firm since startup may resent the younger family member's assuming control of the venture.

True or false: Bankruptcy should be shared with employees and everybody else involved in an organization.

True

The final consideration when an entrepreneur is faced by the prospect of failure of a venture is to _____.

avoid hanging on to a venture that will continually drain resources

When faced with the prospect of failure, the entrepreneur should first _____.

consult with his or her family

Under Chapter 13 bankruptcy, the individual who has filed for bankruptcy _____.

creates a five-year repayment plan under court supervision

Identify a feature of an effective succession plan for a business.

It should be clearly communicated to all employees.

Identify the true statements about the reforms in the Bankruptcy Code that were signed into law in April 2005. (Check all that apply.)

The reforms made it more challenging to walk away from all debt by filing for Chapter 7 bankruptcy. Under the law, individuals have to necessarily obtain credit counseling within six months of filing.

Identify a true statement about employee stock option plans.

They are a way to award employees and clarify the succession process.

Which of the following is a requirement for keeping a new venture afloat?

Create good marketing plans with clear objectives.

Identify the warning signs of bankruptcy in a venture. (Check all that apply.)

Customers are given huge discounts to improve payments because of poor cash flow. Materials to meet supply orders are scarce.

_____ involve an initial public offering, private sale of stock, succession by a family member or a nonfamily member, merger with another company, or liquidation of a company.

Exit strategies

True or false: Management buyouts usually involve an indirect sale of the venture for a bid price.

False

Which of the following is a disadvantage of the employee stock option plan (ESOP)?

It requires a total valuation of the venture to estimate the amount of the ESOP package.

Identify the different reasons why companies do not successfully come out of Chapter 11 bankruptcy. (Check all that apply.)

Unstable global economy Firms wait for too long before filing for bankruptcy

The first principle in any successful business turnaround is _____.

aggressive hands-on management

Identify the strategies that an entrepreneur should follow when he or she has decided to sell the business but does not need to sell immediately. (Check all that apply.)

Ensure all financial statements are in order, including budgets and cash flow projections Get nondisclosures from important employees

True or false: The results of each bankruptcy filing is mostly similar.

False

True or false: When deciding to sell his or her business, an entrepreneur should project the business as having a smaller share in a large market than a larger share in a small market niche.

False

Health Kure Pharma Inc. is a pharmaceutical company that filed for Chapter 11 bankruptcy. However, even after reemergence, the company fails to achieve considerable sales because of the availability of cheaper drugs in the market from generic drug manufacturers. Due to consistent losses, the company faces bankruptcy. Which of the following reasons is responsible for the company not being able to successfully come out of Chapter 11 bankruptcy?

Intense competition

Identify the advantages of an employee stock option plan. (Check all that apply.)

It offers a unique incentive to employees that can boost their motivation to put in extra time or effort. It acts as a mechanism to pay back those employees who have been faithful to the venture.

Shoptop Retail Inc. is a new retail corporation that has established retail stores in different cities in the United States. The company has completed six months. Which of the following would most likely be a warning sign of bankruptcy for the company?

The stores giving large discounts to customers to increase cash flow