Deck 15: Harvesting the Entrepreneurial Venture

Question 1

The Oakland Scavenger case may have a major effect on the management succession plans of family business.

Answer 1

True

Question 2

When the founder of a business is willing to share authority, succession problems can be maximized.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

There are two types of succession pressures: family and nonfamily.

Question 6

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

Question 7

Some entrepreneurs are easy to replace, and some cannot be replaced.

Question 8

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.

Question 9

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

Question 10

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

Question 11

The basic rule for privately held businesses is this: The owner should develop a succession plan.

Question 12

Only three in ten privately held enterprises make it to a second generation.

Question 13

Although family members may not play an active role in the business, they still may want to inherit part of the business.

Question 14

Only ten percent of all privately held enterprises make it to a third generation.

Question 15

External environmental factors do not have any effect on the succession issue.

Question 16

An important issue in the Oakland Scavenger case is that of whether nonfamily members should be allowed to be successors in family businesses.

Question 17

Nonfamily members sometimes bring pressure on the owner-manager in an effort to protect their personal interests.

Question 18

If the successor and the business environment have a "right fit," the successor will be minimally effective.

Question 19

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

Question 20

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.

Question 21

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

Question 22

A harvest plan

A) is similar to a will.
B) defines when and how business owners will realize a cash return on investment.
C) leaves the business to the next generation.
D) is simple to implement.

Question 23

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.

Question 24

"Harvest" does not mean

A) family members agree about the business.
B) that any profits will be reaped.
C) that the firm continues to exist.
D) the challenges and responsibilities of the entrepreneur are over.

Question 25

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

Question 26

It is not necessary for the entrepreneur to seek outside advice when liquidating the firm.

Question 27

When considering financial difficulties, which of the following statements constitutes a forcing event?

A) The business has a loss for one quarter.
B) A lender demands the removal of an owner-manager before lending the necessary funds.
C) The business does not make a substantial profit for the first year of business.
D) The business has record losses over a holiday season.

Question 28

Harvest strategies rarely involve the complete sale of a business.

Question 29

In some cases, entrepreneurs may be in violation of the law if they employ too many family members.

Question 30

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.

Question 31

Barriers to successful succession planning, discussed in the text, include which of the following?

A) nobody wanting to own the firm.
B) lack of a final will.
C) dilemma of choice.
D) lack of profits.

Question 32

Research on family firms demonstrates which of the following facts?

A) only 16 percent make it to a third generation
B) many family firms cease to exist after one month
C) only nine out of ten make it to a second generation
D) only 3 percent make it to the next generation

Question 33

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

Question 34

Most privately held firms

A) lack a succession plan.
B) pass the firm to a child.
C) don't view succession as a major issue.
D) leave the succession decision to the executor of the owner's will.

Question 35

The liquidity event can be achieved through an IPO or selling out.

Question 36

Research shows that many privately held firms go out of business within

A) one year.
B) 25 years.
C) two years.
D) 10 years.

Question 37

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) pressure from a family member to start his/her own business
C) employee wanting a percentage of the business in the owner's will
D) pressure on the owner/manager to designate an heir

Question 38

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.

Question 39

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

Question 40

Which of the following is an event that would require an entrepreneur to step aside and let someone else direct the operation?

A) nonterminal physical incapacitation
B) divorce
C) age
D) disagreements with children or business partners

Question 41

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

A) abrupt happenings.
B) forcing events.
C) legal events.
D) unforeseen difficulties.

Question 42

The entrepreneur who has to choose a successor with potential to develop the attributes necessary to run the business should consider which of the following aspects over the others?

A) the potential successor's drive and resourcefulness
B) the potential successor's age
C) the potential successor's education
D) the potential successor's gender

Question 43

Which of the following is not a step in developing a succession strategy?

A) identifying successor qualities
B) carrying out the succession plan
C) undertaking forcing events
D) understanding contextual aspects

Question 44

Each of the following are nonfamily elements under pressure and interest from outside the firm except

A) increased insurance rates.
B) the competition changing strategy.
C) regulatory agencies.
D) customers.

Question 45

The Oakland Scavenger Company case resulted in

A) a favorable ruling by the court for the plaintiffs.
B) a favorable ruling by the court for the defendants.
C) an out-of-court settlement.
D) an appeal to the U.S. Supreme Court.

Question 46

The managerial successor typically is not interested in

A) efficiency.
B) internal control.
C) effective use of resources.
D) creativity.

Question 47

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

A) a successor's skills are judged with greater objectivity.
B) strong relationships are readily established.
C) normal mistakes are viewed as incompetence.
D) knowledge of the environment is limited.

Question 48

Succession pressure inside the firm exists

A) when the founder wants to give up authority.
B) when family members want to keep and manage the business.
C) nonfamily employees don't want the business.
D) competition-is hurting the business.

Question 49

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

A) The owner's family controls the management continuity strategy entirely.
B) The owner controls the management continuity strategy entirely.
C) The owner works with a professional advisor on the management continuity strategy.
D) The owner works with family on the management continuity strategy.

Question 50

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

A) managerial successor.
B) entrepreneurial successor.
C) opportunistic successor.
D) family successor.

Question 51

Which of the following is not a contextual aspect to be considered in an effective succession plan?

A) time
B) managerial ability
C) entrepreneurial vision
D) cost

Question 52

The textbook identifies which of the following as a key aspect to be considered in an effective succession?

A) the entrepreneur's vision
B) the family's wants and needs
C) the profitability of the venture
D) the marital status of the replacement

Question 53

The first source of succession often is

A) nonfamily outsiders.
B) professional managers.
C) family and in-house personnel.
D) friends of the family.

Question 54

Which of the following is not a contextual aspect to be considered in an effective succession plan?

A) technology
B) time
C) environmental factors
D) type of venture

Question 55

One of the most recent legal challenges to management succession has charged

A) employment discrimination.
B) retirement income discrimination.
C) racial discrimination.
D) minimum wage discrimination.

Question 56

An entrepreneurial successor is someone who

A) is ingenious, creative, and driven
B) is loyal
C) has a profit orientation
D) has an administrative orientation

Question 57

One of the most recent legal challenges to management succession came from the

A) Anderson Manufacturing Corporation case.
B) Johnson Brothers case.
C) Oakland Scavenger Company case.
D) Willy & Willy Inc. case.

Question 58

The Oakland Scavenger case is profound to owners of family businesses in that

A) conceivably, the owner can be sued for not giving equal treatment to a son as to a daughter.
B) 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.
C) conceivably, the owner can be sued for not declaring a family member his or her successor.
D) the owner can be fined for not declaring his or her first son the heir to the business.

Question 59

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

A) managerial successor.
B) entrepreneurial successor.
C) opportunistic successor.
D) all of the above.

Question 60

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

A) normal mistakes are viewed as incompetence.
B) perspective of the environment is broadened.
C) successor's skills are judged with more objectivity.
D) skills specifically required by the business are developed.

Question 61

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

A) Place real estate in a separate corporation.
B) Increase management's salaries and fringe benefits.
C) Establish a leasing subsidiary.
D) Give some or all of the owner's shares to heirs.

Question 62

A reason for an entrepreneur to sell a venture is

A) boredom.
B) lack of capital.
C) age and health.
D) all of the above.

Question 63

A written succession strategy

A) is part of an entrepreneur's will.
B) prepares the entrepreneur for developing a management continuity strategy and policy.
C) must be reviewed by the government.
D) must be reviewed by the family.

Question 64

Bill and James Raymond have worked for their father's company for 15 years. Their father, who is president and now wants to retire, wants his sons jointly to take over the company. Bill and James have never agreed on anything. Should their father try another succession plan?

Question 65

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

A) Publicize the offer to sell.
B) Finalize the prospective buyers.
C) Segregate the assets.
D) Value the business.

Question 66

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

A) Looking for new venture to start up.
B) Publicizing the offer to sell.
C) Valuing the business.
D) Segregating assets.

Question 67

The idea of selling out should be viewed in

A) a destructive sense.
B) a negative sense.
C) a positive sense.
D) a last resort sense.

Question 68

Which of the following is a True statement about seeking legal advice with respect to succession planning?

A) Legal advice is seldom beneficial.
B) Legal advice from an advisor who understands succession issues is always crucial.
C) It is seldom crucial for legal advisors to design a plan for succession.
D) The more you pay, the better the advice.

Question 69

A typical example of a forcing event is

A) death.
B) a natural disaster.
C) an IRS audit.
D) a slow business year.

Question 70

Outside help in succession planning should be considered when

A) the entrepreneur's ego gets in the way of a succession plan
B) the family doesn't want the business
C) the government requires it
D) market competition is heating up

Question 71

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

A) tax implications arising from the sale of a business.
B) interest implications arising from the sale of a business.
C) security interests arising from the sale of a business.
D) home improvement implications arising from the sale of a business.

Question 72

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

A) Publicize the offer to sell.
B) Segregate the assets.
C) Time the sale appropriately.
D) Prepare a financial analysis.

Question 73

The employees at Donnely and Associates have noticed a case of favoritism toward the president's son Jim. Jim constantly breaks company policy. The president is planning to retire in a few years. What should be done about the growing unrest in the company?

Question 74

Which of the following statements about communication between the seller and buyer of a business is recommended?

A) End communication at least ten days prior to signing a buy agreement.
B) Communicate with sellers only through proxies.
C) Continue communication through the transition to new ownership.
D) End communication at the time the buy agreement is signed.

Question 75

When selling a business all of the following is good advice except:

A) sell when the timing is right
B) sell when sales are peaking
C) sell when profits are low.
D) sell when inventory is high.

Question 76

Which is an influencing factor in succession?

A) family and business cultural issues
B) government regulation
C) current economic conditions
D) the competition

Question 77

Promotion from within is

A) seldom effective.
B) usually a bad idea.
C) a morale-building philosophy.
D) a sure way to measure profitability.

Question 78

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

A) Publicize the offer to sell.
B) Value the business.
C) Finalize the prospective buyers.
D) Time the sale appropriately.

Question 79

Meeting with potential buyers

A) leads to a lower selling price.
B) helps in the negotiation of major requirements.
C) reduces buyer confidence.
D) reduces seller confidence.

Question 80

Which of the following is a True statement about the characteristics that successors should possess?

A) There are only a few characteristics needed.
B) Situation does not matter.
C) Knowledge of the firm is not a desirable characteristic or quality.
D) Some characteristics will be more important than others, depending on the situation.