Question 1

As discussed in the Opening Profile to Chapter 12, a large percentage of small to medium-sized business owners in Canada do not have a formal succession plan for their business, despite having plans to retire within the next five years.

Accepted Answer

Many small to medium-sized business owners in Canada lack formal succession plans, which is a common issue highlighted in discussions about business continuity and retirement planning.

Question 2

As discussed in the Opening Profile to Chapter 12, Gerald Schwartz is an example of a very successful entrepreneur who likes to buy distressed businesses, improve them, and then keep them.

Accepted Answer

Gerald Schwartz is known for buying distressed businesses, improving them, and then selling them, not keeping them.

Question 3

As discussed in the text, between 35% to 50% of all businesses started in Canada do not last three years, while only 20% of businesses reach year 10.

Accepted Answer

This statement reflects common statistics about business survival rates, indicating that a significant percentage of new businesses fail within the first few years, with even fewer surviving to the ten-year mark.

Question 4

One of the major causes that lead to business failure is the entrepreneur's inability to identify and deal with problems quickly.

Accepted Answer

Entrepreneurs who fail to identify and address problems promptly may face escalating issues that can lead to business failure.

Question 5

The most common reason cited for bankruptcy among young Canadian companies is lack of working capital.

Accepted Answer

The answer of The most common reason cited for bankruptcy...

Question 6

Starting a business based on an idea or hobby rather than a true opportunity is rarely a factor in business failure as the enthusiasm and drive of the owner easily compensates for a weak market.

Accepted Answer

Enthusiasm and drive are important, but they cannot compensate for a lack of market demand or a weak business model, which are critical factors for business success.

Question 7

Trying to grow too quickly can be a serious problem for a young company that is not capable of handling the large volume of business that a major order would bring.

Accepted Answer

Growing too quickly can strain a young company's resources, infrastructure, and management, potentially leading to operational inefficiencies and financial difficulties.

Question 8

The most common reason for companies that fail after surviving their first five years is management inexperience.

Accepted Answer

The most common reason for failure after the first five years is often poor financial management or lack of capital, rather than management inexperience.

Question 9

An over-reliance on debt as their main source of capital is a problem for many businesses due to the effect it has on monthly cash flow.

Accepted Answer

Relying heavily on debt increases monthly obligations due to interest and principal repayments, which can strain cash flow and limit financial flexibility.

Question 10

Approximately 68% of businesses that fail in Canada say that some form of external shock impacted their business.

Accepted Answer

This statement is based on research and surveys that indicate a significant percentage of business failures are attributed to external shocks, such as economic downturns, changes in regulations, or unexpected events.

Question 11

External shocks that may hurt a business include running out of cash, key employee turnover, and lack of profitability.

Accepted Answer

These are internal issues. External shocks are events outside a business's control, like natural disasters or economic downturns.

Question 12

A company in a crisis situation is usually facing some type of cash-related problem, such as an inability to make a loan payment or to pay staff or creditors.

Accepted Answer

A crisis situation often involves financial distress, where a company struggles with liquidity issues, affecting its ability to meet financial obligations.

Question 13

As discussed in the text, the first step for an entrepreneur with a business in a crisis situation is to prepare a revised business plan.

Accepted Answer

The text states that the first step for an entrepreneur with a business in a crisis situation is to prepare a revised business plan.

Question 14

The purpose of preparing a revised business plan for an entrepreneur with a business in a crisis situation is to show employees and other interested stakeholders why the business is closing and how it will be done.

Accepted Answer

The purpose of a revised business plan in a crisis is to outline strategies for recovery and sustainability, not to explain closure.

Question 15

Management Buyout. What is involved and why would it happen?

Accepted Answer

The answer of Management Buyout. What is involved and why...

Question 16

As mentioned in the text, Statistics Canada has found that when in a crisis situation, the hesitation of entrepreneurs to use outside consultants is one of the main reasons that companies go bankrupt.

Accepted Answer

The text states that "the hesitation of entrepreneurs to use outside consultants is one of the main reasons that companies go bankrupt."

Question 17

The essential step to filing for protection under the Bankruptcy and Insolvency Act is to contact a bankruptcy trustee.

Accepted Answer

A bankruptcy trustee is a licensed professional who administers the bankruptcy process and helps individuals or businesses file for protection under the Bankruptcy and Insolvency Act in Canada.

Question 18

Generally, the first step in a bankruptcy proceeding is to work with the trustee to make a formal proposal to the creditors.

Accepted Answer

The answer of Generally, the first step in a bankruptcy...

Question 19

In a bankruptcy proceeding in Canada, all creditors must vote to accept the formal proposal or the business will have no choice but to declare bankruptcy immediately.

Accepted Answer

In Canada, a formal proposal under the Bankruptcy and Insolvency Act requires approval by a majority in number and two-thirds in value of the creditors who vote, not all creditors.

Question 20

Once a company is declared bankrupt, a receiver is appointed by the courts to take possession of all of the company's assets, which will be sold to pay the creditors in order of priority.

Accepted Answer

In bankruptcy proceedings, a receiver or trustee is often appointed to manage and liquidate the company's assets to pay off creditors according to the legal priority of their claims.

Quiz 12: Informal Risk Capital, Venture Capital, and Going Public