Chapter 15 (succession planning/exit)

Question 1

Name some exit startegies

Answer 1

-IPO
-Private sale of stock
-Succession by a family member or non family member
-Merging with another company
-Liquidation of company
-Sale of the company to employees (ESOP)

Question 2

Name some tips to succession planning

Answer 2

-allow sufficient time and plan early
-estimate firms value or hire consultants to do so
-evaluate potential successors on their merit - not whether they remind you of yourself
-make sure the person is motivated to carry out the business, especially with family
-set a date and stick to it, when someone will take over the venture

Question 3

What needs to be done when transferring to non family members

Answer 3

-train a key employee to retain some equity
-retain control and hire manager
-sell the business outright

Question 4

What can be done if the business needs to be sold immediately?

Answer 4

Direct sale

Question 5

If the business does not need to be sold immediately, what can be done?

Answer 5

-focus on profit margin
-get financial statements in order
-prepare management docs
-assess the condition of capital equipement
-maintain good management team
-do advice planning and prep work

Question 6

Who may be helpful in direct sales

Answer 6

Business brokers

Question 7

What is a good thing about selling to bigger companies

Answer 7

May provide resources to meet goals

Question 8

What is an ESOP (employee stock option plan)

Answer 8

Where the business is sold to employees over a period of time

Question 9

What are some advantages to ESOP’s

Answer 9

-enhance motivation
-pay back employees for being loyal
-employees may know what is best for the company compared to outsiders

Question 10

What are some disadvantages to ESOP’s

Answer 10

complex to establish

Question 11

What is a manager buyout

Answer 11

Sale to managers of the company
-simpler than ESOP since it is a direct sale

Question 12

What are two types of bankruptcy? explain them

Answer 12

Chapter 7: where company’s assets are liquidated for cash to pay debtors
Chapter 11: company continues to operate and may close to restructure under government supervision

Question 13

What are some bankruptcy tips?

Answer 13

-file bankruptcy before running dry on cash
-maintain good records
-be prepared to be examined by creditors

Question 14

What is liquidation of assets in bankruptcy

Answer 14

-It is the most extreme type of bankruptcy whereby a business sells/liquidates their business, either voluntary or involuntary

Question 15

Just because you declare bankruptcy, doesn’t mean…

Answer 15

You are closing your doors or closing the business

Question 16

In order to best prepare against bankruptcy, what can be done?

Answer 16

-Be aware of changing market conditions and modify the business strategies
-forecasting

Question 17

What are some early signs of bankruptcy?

Answer 17

-large discounts to customers to enhance payments
-contracts are accepted below standard amount to generate cash
-key personal leaving the company
-payroll taxes are not paid
-suppliers demand higher cash, less credit
-higher customer complaints