Chapter 5 The Family Business

In the U.S., family businesses generate what percent of the gross domestic product?

49%

A "best practice" for the family firm is to promote family members above other, more skilled employees, so that the workers will understand who is in charge T/F

FALSE

The process of preparing a family member to take over a family business typically takes about one year T/F

FALSE

a document that states the principles intended to guide a family firm though times of crisis and change, including the succession process is called

FBC -Family business constitution

Even if family members lack the capability to run the business, an entrepreneur should always select a successor from this pool of talent.

False

Family owned businesses represent less than five percent of the Fortune 500 firms in the US. T/F

False

In a family business, the family's primary function it to ensure the profitability and survival of the business. T/F

False

In the family business, family considerations affect only members of the family. T/F

False

Nepotism is not as large of a problem for small companies as for large ones T/F

False

One weakness of a family business is the tendency of family members to leave quickly when the business starts to falter. T/F

False

When a parent retires completely and turns the firm over to a son or daughter, the firm ceases to be a family business. T/F

False

Steve, Harry, and Chris, who own and operate a family auto parts store, are experiencing tough times during a downturn in the local economy. To help the store survive these conditions, the brothers agree to each take a 25% reduction in salary for a 1 year period. This decision is..

Illustrates an important advantage of a family business.

Which family characteristic may be in conflict with a business?

Perpetuate traditions.

Which item is not an advantage of a family-owned business?

Reduced cost of control

An advantage of a family business is that family business is that family members may have company knowledge that leads to better decisions. T/F

True

Bequeathing equal shares of ownership to children in family a family business will probably create havoc in the future functioning of the business. T/F

True

Family retreat are best handled by an outside facilitator, who can help develop an agenda and establish ground rules for discussion. T/F

True

Husband-wife teams that own a business are popularly referred to as co-preneurs. T/F

True

Nonfamily employees in a family business may be caught in the crossfire between feuding family members. T/F

True

The role of the entrepreneur's spouse in family conflicts can sometimes be described as that of a mediator in business relationships between the entrepreneur and the children. T/F

True

Two major factors involved in grooming a son or daughter to enter the family business are the child's aptitude and the right to choose a career. T/F

True

When hiring non-family employees it is only fair to identify the positions, if any, that are reserved for family members. T/F

True

a family retreat is designed to

bring family members together to openly discuss business matters

in considering the role of younger family members, the best philosophy is to recognize that..

children should have a right to prove themselves

A common problem for a founder in passing the business on to a daughter or son is..

deciding whether the child has the necessary temperament and ability

Those with a ___________ commitment are the most likely to work hard because of their passion for the business

desire-based

which statement is true concerning using available family talent in the succession plan

if the available talent is not sufficient inside the company, the owner must bring in outside leadership even if it is not perceived as a favorable decision by the family at large

Fran and Bob (who are married) own and manage a cleaning service. A potential advantage of this arrangement is..

it affords the opportunity to share more of their lives and build something together.

Jan and Jill started a business 20 years ago. Jill recently stepped down; her daughter Jenny has agreed to start managing the company with Jan's help; and the eventual goal is for Jenny to run the entire company. This process between Jan and Jenny is called________.

mentoring

A founder's core values may become part of the family business culture because..

others in the firm absorb traditions and values established by the founder

Jim, the founder of a family business specializing in real estate, is contemplating turning the business over to his 5 children. One possibility , the founder believes, is to divide ownership equally among the children. This action would...

potentially hinder the future functioning of the business

concerning then need for good management in the family business, which "best practice" is best

stimulate new thinking and fresh strategic insights by promoting learning

which statement is true concerning the process if preparing a family successor for leadership in the family business

the process should be as long drawn out as possible for the successor to be ready