Chapter 15

The average life expectancy of a privately held firm is a. 24 years. b. 10 years. c. and indefinite number of years. d. 50 years.

a. 24 years

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

F

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

F

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

T

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.

T

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

T

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.

T

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

T

T/F There are two types of succession pressures: family and non-family

T

One advantage of the delayed-entry strategy for the younger generation succeeding the older generation of a family business is that a. normal mistakes are viewed as incompetence. b. knowledge of the environment is limited. c. a successor's skills are judged with greater objectivity. d. strong relationships are readily established.

c. a successor's skills are judged with greater objectivity.

A type of successor who is interested in efficiency, internal control, and effective use of resources would be considered a(n) a. entrepreneurial successor. b. family successor. c. managerial successor. d. opportunistic successor.

c. managerial successor.

Research on family firms demonstrates which of the following facts? a. many family firms cease to exist after one month b. only 3 percent make it to the next generation c. only 16 percent make it to a third generation d. only nine out of ten make it to a second generation

c. only 16 percent make it to a third generation

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

c. technology

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

c. value the business

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

T

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

T

The Oakland Scavenger case is profound to owners of family businesses in that a. 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. b. the owner can be fined for not declaring his or her first son the heir to the business. c. conceivably, the owner can be sued for not declaring a family member his or her successor. d. conceivably, the owner can be sued for not giving equal treatment to a son as to a daughter.

a. 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.

A harvest plan a. defines when and how business owners will realize a cash return on investment. b. leaves the business to the next generation. c. is simple to implement. d. is similar to a will.

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

A type of successor who is high in ingenuity, creativity, and drive would be considered a(n) a. managerial successor. b. entrepreneurial successor. c. all of these. d. opportunistic successor.

b. entrepreneurial successor.

A typical example of a forcing event is a. a natural disaster. b. a slow business year. c. an IRS audit. d. death.

d. death

Which is an influencing factor in succession? a. government regulation b. the competition c. current economic conditions d. family and business cultural issues

d. 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? a. rivalry among various branches of the family b. employee wanting a percentage of the business in the owner's will c. pressure on the owner/manager to designate an heir d. pressure from a family member to start his/her own business

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

One advantage of an early-entry strategy for the younger generation succeeding the older generation of a family business is a. successor's skills are judged with more objectivity. b. perspective of the environment is broadened. c. normal mistakes are viewed as incompetence. d. skills specifically required by the business are developed.

d. skills specifically required by the business are developed.

"Harvest" does not mean a. that the firm continues to exist. b. family members agree about the business. c. that any profits will be reaped. d. the challenges and responsibilities of the entrepreneur are over.

d. the challenges and responsibilities of the entrepreneur are over.

Succession pressure inside the firm exists a. competition-is hurting the business. b. when the founder wants to give up authority. c. nonfamily employees don't want the business. d. when family members want to keep and manage the business.

d. when family members want to keep and manage the business.