79) The preparation of a successor is a two-way process, showing the direction of the business
and what led to its success, but also learning and listening.
Topic: Management Succession
AACSB: Analytic Skills
80) Even though the owner has stepped aside, he/she should always jump back in to fix problems
as they occur.
Topic: Developing a Management Succession Plan
AACSB: Analytic Skills
81) The process of transferring power should be quick and absolute.
Topic: Developing a Management Succession Plan
AACSB: Analytic Skills
82) Nearly all business owners think that their heirs will need to sell part or all of the business to
satisfy estate taxes.
Topic: Developing a Management Succession Plan
AACSB: Analytic Skills
83) A buy/sell agreement often also uses life and disability insurance to ensure the surviving co-
owners have the means to buy the business.
Topic: Buy/Sell Agreement
AACSB: Analytic Skills
84) A bypass trust allows the business owner to keep life insurance proceeds out of his/her estate
as long as the owner doesn’t die within three years of establishing the trust.
Topic: Setting Up a Trust
AACSB: Analytic Skills
85) An irrevocable asset trust is designated to pass insurance proceeds on to the small business
owner’s heirs without them having to pass through probate or be subject to estate taxes.
Topic: Setting Up a Trust
AACSB: Analytic Skills
19
86) A trust is a contract between a grantor and a trustee which shields all assets from any federal
tax and permits the small business owner to pass on his/her business without tax loss.
Topic: Setting Up a Trust
AACSB: Analytic Skills
87) An estate freeze minimizes estate taxes by creating two classes of stock, preferred and
nonvoting common stock, and only allowing the preferred stock, which the owner holds, to
appreciate.
Topic: Estate Freeze
AACSB: Analytic Skills
88) Small businesses can lower their insurance premiums by banding together to purchase
coverage.
Topic: Types of Insurance
AACSB: Analytic Skills
89) Risk management is deciding what type of insurance or other precautions need to be
implemented to decrease a business’s exposure to loss.
Topic: Risk Management Strategies
AACSB: Analytic Skills
90) Anti-theft and anti-shoplifting equipment are risk avoidance devices.
Topic: Risk Management Strategies
AACSB: Analytic Skills
91) Part of risk-reducing strategies is taking steps to build some safety into a situation.
Topic: Risk Management Strategies
AACSB: Analytic Skills
92) Credit checking customers is an example of a risk reduction strategy.
Topic: Risk Management Strategies
AACSB: Analytic Skills
20
93) Installing a sprinkler system to minimize the threat of fire would be a risk reduction strategy.
Topic: Risk Management Strategies
AACSB: Analytic Skills
94) Risk anticipation strategies promote self-insurance.
Topic: Risk Management Strategies
AACSB: Analytic Skills
95) Self-insurance is entirely a large business phenomenon.
Topic: Risk Management Strategies
AACSB: Analytic Skills
96) A small business establishing a self-insurance fund is following a risk transferring strategy.
Topic: Risk Management Strategies
AACSB: Analytic Skills
97) The risk behind self-insurance is that if there aren’t sufficient funds set aside, the business
will suffer losses.
Topic: Risk Management Strategies
AACSB: Analytic Skills
98) Insurance coverage is an example of risk transfer.
Topic: Risk Management Strategies
AACSB: Analytic Skills
99) Every risk can be insured.
Topic: Risk Management Strategies
AACSB: Analytic Skills
21
100) Identify and explain the essential qualities to a successful family business.
Topic: Family Businesses
AACSB: Analytic Skills
101) Describe the exit strategies available to the founder of the small business; if he/she wants to
sell the company to insiders, and if he/she is willing to sell it to outsiders.
Topic: Exit Strategies
AACSB: Analytic Skills
102) Why should the small business owner have a succession plan? Identify the five stages the
owner needs to take his/her successor through in preparation for the succession.
Topic: Management Succession
AACSB: Analytic Skills
103) Discuss the five steps involved in developing a management succession plan.
Topic: Developing a Management Succession Plan
AACSB: Analytic Skills
22
104) A friend wants to ensure that his succession plan succeeds. Explain how a “survival kit” can
help the management plan succeed.
Topic: Create a Survival Kit for the Successor
AACSB: Analytic Skills
23
105) Name and outline the characteristics of five strategies for reducing estate taxes in a family
business.
∙FAMILY LIMITED PARTNERSHIP. Creating a family limited partnership (FLP)
allows business-owning parents to transfer their company to their children (thus lowering their
estate taxes) while still retaining control over it for themselves. To create a family limited
partnership, the parents (or parent) set up a partnership among themselves and their children.
The parents retain the general partnership interest, which can be as low as one percent, and the
children become the limited partners. As general partners, the parents control both the limited
partnership and the family business.
Topic: Cope with the Financial Realities of Estate and Gift Taxes
AACSB: Analytic Skills
106) Differentiate among the three risk management strategies: risk avoidance, risk anticipation,
and risk transfer. Offer an example of each.
Topic: Risk Management Strategies
AACSB: Analytic Skills
107) Explain the nature and purpose of insurance in relationship to the small business.
Topic: The Basics of Insurance
AACSB: Analytic Skills
25
108) Outline the major types of insurance protection the typical small business needs.
Topic: Types of Insurance
AACSB: Analytic Skills
109) What can a small business owner do to keep insurance costs under control?
Topic: Controlling Insurance Costs
AACSB: Analytic Skills
26