Deck 15: Succession Planning and Strategies for Harvesting and Ending the Venture

Question 1

An ESOP is a five- to six-year plan to sell a business to its employees.

Answer 1

False

Question 2

About one third of all new start-ups fail in their first years.

Answer 2

False

Question 3

Passing the business to an employee ensures the new principal is familiar with the business and the market.

Answer 3

True

Question 4

The first principle in any successful turnaround is aggressive hands-on management.

Question 5

About 50 percent of family firms successfully make the transition to the second generation.

Question 6

Only 60 percent of businesses have a succession plan in place.

Question 7

One key advantage of an ESOP is that it enhances employee motivation.

Question 8

As soon as bankruptcy warning signs begin appearing,bankruptcy is inevitable.

Question 9

The Family Business Institute indicates that about 12 percent of successful ventures survive into the third generation of ownership.

Question 10

It is common for a buyer to purchase a business using notes based on future profits.

Question 11

An effective succession plan should be communicated only to top management and not all employees.

Question 12

Adversity faced during a business's life cycle may include external factors such as the economy,competition,or poor management.

Question 13

When seeking venture capital for a new company,investors only look at the business plan for that venture and previous business failures are irrelevant.

Question 14

Since 2010,the number of business filings for bankruptcy has steadily increased each year.

Question 15

Suppliers demanding payment in cash and materials to meet orders is lacking are two warning signs of bankruptcy.

Question 16

The sale of the company to employees is an exit strategy.

Question 17

A business,when it comes to selling,will be less valuable if it is on a narrow,well-defined segment.

Question 18

In establishing a price for a management buyout the entrepreneur should not include the goodwill value established from past revenue because it can't be quantified.

Question 19

A "management buyout" is the same thing as an "ESOP."

Question 20

An employee stock option plan establishes a new legal entity.

Question 21

Bankruptcy should be a last resort for the entrepreneur.

Question 22

Which of the following is not an exit strategy

A) An IPO
B) A private sale of stock
C) Liquidation
D) Franchising

Question 23

The Bankruptcy Act of 1978 was designed to protect creditors from receiving nothing in bankruptcy.

Question 24

Under Chapter 13,meeting with groups of creditors to amicably solve issues is usually a good idea.

Question 25

More than 50 percent of firms filing for Chapter 11 bankruptcy emerge from the process.

Question 26

The best management style for a manager undertaking a business turnaround is a bunker mentality.

Question 27

Bankruptcy can be used as a bargaining chip with creditors to allow the venture to voluntarily reorganize.

Question 28

Chapter 7 is the most severe alternative in bankruptcy.

Question 29

If an entrepreneur recognizes the warning signs of bankruptcy early,he or she may be able to prevent it from occurring.

Question 30

The bankruptcy type that is most common is Chapter 7 bankruptcy.

Question 31

All bankruptcies are handled by the U.S.Supreme Court.

Question 32

When a venture is in trouble and facing bankruptcy,the entrepreneur should first sit down with his or her spouse and explain what is happening.

Question 33

Bankruptcy protects entrepreneurs from creditors and competitors.

Question 34

It is best for the entrepreneur to have any litigation in existence transferred to the bankruptcy court.

Question 35

Chapter 11 bankruptcy allows a firm to reorganize and prepare strategies to improve future profits.

Question 36

Under Chapter 13,the key to enhancing the bankruptcy process is by stressing the significance of the creditors' support during the process.

Question 37

Cash flow is one of the major causes for an entrepreneur to have to declare bankruptcy.

Question 38

When passing down a family business,________ of businesses make it to the third generation.

A) 5 percent
B) 12 percent
C) 30 percent
D) 60 percent

Question 39

Because it is so severe,Chapter 7 must always be voluntary.

Question 40

When business failure looks probable,the entrepreneur should seek outside advice.

Question 41

A common reason why companies do not come out successfully from a Chapter 11 bankruptcy is because they

A) are in denial
B) don't have legal representation
C) wait too long to file for protection
D) do not understand the bankruptcy process

Question 42

According to the Small Business Administration,the failure rate of new businesses within the first few years is:

A) less than 25 percent.
B) about 70 percent.
C) 50 percent.
D) about 33 percent.

Question 43

A two- to three-year plan to sell a business to employees is:

A) an ESOP.
B) an acquisition.
C) succession.
D) the most popular method of exit.

Question 44

The most severe form of bankruptcy is:

A) Chapter 7.
B) Chapter 11.
C) Chapter 13.
D) prepackaged bankruptcy.

Question 45

The Family Business Institute indicates that about ________ percent of successful ventures make it to the second generation of ownership.

A) 40
B) 20
C) 30
D) 10

Question 46

An exit strategy should be put in place during the ________ stage of the business.

A) decline
B) maturity
C) expansion
D) start-up

Question 47

Chapter 11 is the type of bankruptcy that results in:

A) extended time payments.
B) liquidation.
C) reorganization.
D) turn-around time.

Question 48

This occurs when two or more of the largest creditors agree to postpone any claims,acting as stimulus for smaller creditors to also agree to the plan.

A) Extension
B) Evolution
C) Substitution
D) Composition settlement

Question 49

Suggestions for surviving bankruptcy include all of the following except:

A) focus efforts on preparing a realistic reorganization plan.
B) understand how protection against creditors works.
C) file only after cash runs out.
D) maintain good records.

Question 50

The key issue in passing the business on to an employee is

A) long-term debt
B) ownership
C) cash flow
D) experience

Question 51

When the debt is prorated to the creditors as a settlement in Chapter 11 this is called:

A) substitution.
B) evolution.
C) extension.
D) composition settlement.

Question 52

An ESOP:

A) is a device to transfer the business to a small group of key loyal employees.
B) eliminates the need to perform a complete valuation of the venture.
C) motivates employees because they realize they are working for themselves.
D) removes the need for a continuous performance appraisal.

Question 53

The most common method of harvesting a venture is through:

A) direct sale of the business.
B) an IPO.
C) liquidation.
D) employee stock ownership program.

Question 54

All of the following are benefits of an ESOP except:

A) the company can deduct contributions to an ESOP.
B) it offers a planned exit in writing.
C) it offers a unique incentive to employees.
D) it is relatively simple to establish.

Question 55

Exchanging stock or something else for existing debt under Chapter 11 bankruptcy is called:

A) amendment.
B) extension.
C) composition settlement.
D) substitution.

Question 56

Which of the following is not an important part of a succession plan

A) Estimate the firm's value
B) Evaluate potential successors based on how similar they are to you
C) Provide a transition period so the successor can learn the business
D) Set a date for completion of the transition and stick to it

Question 57

Management buyouts usually involve a ________ of the venture for some predetermined price.

A) hostile takeover
B) foreclosure sale
C) cash sale
D) direct sale

Question 58

Which methods of bankruptcy require the entrepreneur to come up with a payment plan

A) Chapters 11 and 13
B) Chapters 7 and 11
C) Chapters 7 and 13
D) Chapters 7, 11, and 13

Question 59

Which of the following is not a requirement for keeping a new venture afloat and reducing the risk of business failure

A) Excess optimism is fine as long as the business is successful
B) Prepare good marketing plans with clear objectives
C) Keep abreast of the marketplace
D) Identify stress points that can put the business in jeopardy

Question 60

Which of the following is not a purpose of the Bankruptcy Act of 1978

A) Ensure a fair distribution of assets to creditors
B) Protect debtors from unfair depletion of assets
C) Protect debtors from unfair demands by creditors
D) Protect creditors from undue delay of money

Question 61

Stress points are a result of all of the following except:

A) sales.
B) the need for new key personnel.
C) major capital investment.
D) lack of time.

Question 62

What are some of the warning signs of bankruptcy

Question 63

Given the cultural climate of the United States,business failure and bankruptcy:

A) mean the entrepreneur can never hope to start over.
B) carry such a stigma that the entrepreneur is disgraced and ostracized.
C) do not have to be the end for the entrepreneur.
D) means that there would be a change in the outlook of the people.

Question 64

From the chapter on the characteristics of an entrepreneur,we know that after the failure of a business entrepreneurs are likely to:

A) continue starting new ventures.
B) look for a position working for someone else.
C) go to work for the government.
D) try again and fail.

Question 65

Explain the advantages and disadvantages of an ESOP.

Question 66

When transferring a business to family members,list the critical factors that an effective succession plan needs to consider.

Question 67

The early signs of bankruptcy are most often:

A) apparent to the entrepreneur.
B) interrelated.
C) occur in isolated instances.
D) unavoidable.

Question 68

The early signs of bankruptcy include all of the following except:

A) key personnel leave the company.
B) payroll taxes are not paid.
C) suppliers demand payment in cash.
D) All of these are early signs of bankruptcy.

Question 69

Identify and define the three major types of bankruptcy.