Deck 15: Obtaining Debt Capital

Question 1

With regard to selling inventory to raise quick cash, the sale of raw materials inventory to competitors is generally considered the best route.

Answer 1

True

Question 2

A common failing of cash-rich firms that suffer from the growth syndrome is that they diversify into unrelated business areas. The problem with this tactic is that they are adding to their overhead but not to their contribution.

Answer 2

True

Question 3

The most frequently cited cause of trouble is failing to develop useful cash budgets and projections.

Answer 3

True

Question 4

Bankruptcy law defines the priority of creditors' claims when the firm is liquidated.

Question 5

A company can become overleveraged by not using guaranteed loans in the place of equity for either start-up or expansion financing.

Question 6

The best route to quick cash is raising the price of your receivables.

Question 7

Accounts receivable is the most liquid non-cash asset.

Question 8

The public has very little awareness and appreciation of just how common this pattern of generosity is of their time, their leadership, and their money.

Question 9

Build a great company but do not forget to harvest.

Question 10

Bankruptcy can provide only for the liquidation of the business; reorganization is not an option.

Question 11

Bankruptcy is a tremendous source of bargaining power for a troubled company.

Question 12

Many emerging businesses have standard costs that are too rigid against which they can compare the actual costs of manufacturing products.

Question 13

Wealth and liquidity are causes of building a great company.

Question 14

Net liquid balance can be thought of as the "committed cash".

Question 15

Most causes of failure are external and out of the control of company management.

Question 16

The prospect of bankruptcy can provide a foundation for bargaining with creditors in a turnaround situation.

Question 17

Use of excess leverage can result from growth outstripping the company's internal financing capabilities. The company then relies increasingly on short-term notes until a cash flow problem develops.

Question 18

Inventory is more liquid than receivables.

Question 19

Think of harvesting as a vehicle for reducing risk and for creating future entrepreneurial choices and options, not simply selling the business and heading for the golf course or the beach.

Question 20

When the lender's collateral is poor, it has little choice but to look to the entrepreneur for a way out without incurring a loss.

Question 21

What is the most common challenge with a management buyout?

A) Capital
B) Expertise
C) Legal structure
D) Hiring and firing workers
E) Depends on the industry

Question 22

Which of the following harvest options is most likely to produce the most cash for the founder at the time of sale?

A) MBO
B) ESOP
C) Strategic alliance
D) Outright sale
E) Merger or acquisition

Question 23

Selling at the right time, willingly, involves hitting one of the many strategic windows that entrepreneurs face.

Question 24

By stubbornly and steadfastly refusing to explore harvest options and exiting as a natural part of the entrepreneurial process, owners may actually increase their overall risk and deprive themselves of future options.

Question 25

Entrepreneurs who have harvested their ventures very often reinvest their leadership skills and money in such community activities as symphony orchestras, museums, and local colleges and universities.

Question 26

Which of the following is not an aspect of a public offering?

A) Increased potential for market exposure
B) Access to long-term capital markets
C) Access to options for near-term liquidity
D) Government restrictions and oversight
E) All of the answers are aspects of a public offering

Question 27

Identify three external forces that can cause a company to get into trouble.

Question 28

If begun early in the venture building process, shaping a harvest strategy is a straightforward task.

Question 29

What is a major protection against and the biggest help in getting out of trouble?

A) A long-term strategy
B) Cash budgets and projections
C) Experienced advisors and directors
D) A very capable team
E) Depend on the venture

Question 30

Having a harvest goal and crafting a strategy to achieve it are what separate successful entrepreneurs from the rest of the pack.

Question 31

Employee share ownership plans are harvest vehicles through which founders can realize some liquidity from their shares by sales to the plan and other employees.

Question 32

Entrepreneurs tend to be the least generous regarding larger gifts.

Question 33

Post-harvest entrepreneurs reinvest their efforts and resources in the next generation of entrepreneurs and their opportunities.

Question 34

With small companies, turnaround experts state that most strategic errors relate to the involvement of firms in which area?

A) Unprofitable product lines
B) Unprofitable customers
C) Unprofitable geographic areas
D) All of the answers are correct
E) Unprofitable product lines and unprofitable geographic areas

Question 35

What is the primary source of reducing expenses in a troubled company?

A) Advertising
B) Payroll
C) Underutilized assets
D) Working capital
E) Research and development

Question 36

In a strategic alliance, founders can attract capital, often in substantial amounts, from a large company interested in their technologies.

Question 37

A public offering increases public awareness of the company and contributes to the marketability of the products.

Question 38

What is the primary cause of trouble in a company?

A) Sea changes
B) Management/leadership problems
C) Regulatory changes
D) Competitive pressure
E) Employees

Question 39

MBOs typically require the seller to take a limited amount of cash up front and a note for the balance of the purchase price over several years.

Question 40

A management buyout is one in which a founder can realize a gain from a business by selling it to existing partners or to other key managers in the business.

Question 41

What are the three core aspects of shaping a harvest strategy?

Question 42

Identify four avenues by which a company can realize a harvest from the value it has created.

Question 43

Discuss why it is important to have a harvest goal in place from the beginning of a venture.

Question 44

What are the three broad internal management issues that can lead to trouble in a company?

Question 45

Identify four non-quantitative signals that would indicate the possibility of trouble.

Question 46

Why do goals, values, and principles matter?

Question 47

What are the three most commonly found areas for potential cuts/improvements in a troubled company?

Question 48

What are the ways entrepreneurs can "give back" following a successful harvest?

Question 49

What is the formula for calculating a company's net liquid balance (NLB)?

Question 50

Explain how having a turnaround plan in place can help a troubled company.

Question 51

What are some key predictors and signals that warn of impending trouble?

Question 52

A company focuses on growth without considering profitability. Instead of developing a strategy, the firm takes on low-margin business and adds capacity in an effort to grow. What is the likely result?

Question 53

What three areas does a turnaround specialist examine?

Question 54

What diagnosis is done to detect problems, and why, and how does cash play the central role?

Question 55

Describe the decline in morale at a troubled company.

Question 56

Why do you think that Walt Disney said, "I don't make movies to make money. I make money to make movies?"

Question 57

Explain how a "big project" can get a company into trouble.