Exam 13: Planning for the Harvest

Michael Handelsman's tips for selling a business in a difficult economy include the following except

The boost to employee motivation and effort that results from ownership will vary significantly from firm to firm.

In earlier years, the leveraged buyout became synonymous with the bust-up leveraged buyout.

The opportunity cost on a specific investment is the

Matt Townsend owns a car dealership that is very profitable. Since he plans to retire in 5-10 years, Townsend has decided to retain ownership for now, but without continuing to grow the business. This change would also allow him to invest for retirement some of the cash that the business is now generating. Which of the following harvesting methods does this illustrate?

Exiting or harvesting encompasses

Employee stock ownership plans provide a way for employees with stock in a firm to cash out their ownership position.

An employee stock ownership plan represents

List the three basic types of acquisitions and identify the purpose of each.

What are the personal issues an entrepreneur will face in post-harvest life?

The effects of the harvesting process include

Investors always think ahead about how to exit an enterprise, but the entrepreneur should not have this focus since the business will perform better if it is managed with day-to-day operations in mind.

Harvesting owners generally prefer _____ over _____.

Since future growth usually requires great cash inflows, owners who decide to harvest a value-creating firm by withdrawing cash flows should accelerate the process as much as possible.

Which of the following are always concerned about how to exit a business?

Harvesting encompasses more than just selling and leaving a business.

You Make the Call-Situation 2 Ed and Barbara Bonneau started their wholesale sunglass distribution firm 30 years ago with $1,000 of their own money and $5,000 borrowed from a country banker in Ed's hometown. The firm grew quickly, selling sunglasses and reading glasses to such companies as Wal-Mart, Eckerd Drugs, and Phar-Mor. In addition, the Bonneaus enjoyed using the company to do good things. For example, they had a company chaplain, who was available when employees were having family problems, such as a death in the family. Although the company had done well, the market had matured recently and profit margins narrowed significantly. Wal-Mart, for example, was insisting on better terms, which meant significantly lower profits for the Bonneaus. Previously, Ed had set the prices that he needed to make a good return on his investment. Now, the buyers had consolidated, and they had the power. Ed didn't enjoy running the company as much as he had in the past, and he was finding greater pleasure in other activities; for instance, he served on a local hospital board and was actively involved in church activities. Just as Ed and Barbara began to think about selling the company, they were contacted by a financial buyer, who wanted to use their firm as a platform and then buy up several sunglass companies. After negotiations, the Bonneaus sold their firm for about $20 million. In addition, Ed received a retainer fee for serving as a consultant to the buyer. Also, the Bonneaus' son-in-law, who was part of the company's management team, was named the new chief operating officer.

More recently, the bust-up leveraged buyout was replaced with the build-up leveraged buyout.

An MBO is a(n) _____ in which management is part of the group buying the company.

From the owner's perspective, which of the following would be considered an advantage of harvesting via withdrawal of cash flows from the firm?