978-1259912191 Chapter 13 Solutions Manual Part 1

Chapter Thirteen: Exit/Harvest/Turnaround

Review Questions (p.253)

1. Why would an entrepreneur seek to exit a business? The business may no longer

2. How can an entrepreneur be a millionaire on paper yet have no money in the

c. asset value – the total of all of the hard assets of the organization adding in a

d. capitalization of earnings – any unusual item that the lender or investor feels

e. market estimation – multiply the earnings of the business by the market

5. What steps should a business owner go through to prepare the business to be

6. What four options does a business owner have to sell the business? Options

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Chapter Thirteen: Exit/Harvest/Turnaround

8. What are six things a business owner should keep in mind as he enters

negotiations to sell a business?

a. use a profession mediator

9. What is a turnaround? A turnaround is the effort to reverse the decline of the

business.

10. What are the different types of bankruptcy and when are they each

appropriate?

Chapter 11 – firm receives immediate protection while it reorganizes

Class Activities and Sample Assignments

1. Ask students to discuss the steps in selling a business. Why are they important to a

new small business starting out? (LO 13-2)

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Chapter Thirteen: Exit/Harvest/Turnaround

2. Ask students to find an article related to a recent business that filed for bankruptcy.

Next, ask the students to discuss the valuation method associated with that

business. Choose one person from each group to be the spokesperson to share the

articles. (LO 13-2)

3. Ask students to discuss perquisites, or perks, that a new small business owner can

receive from the firm. Then ask them to discuss how they have the potential to

reduce the tax liability of the business. Reinforce the need for a new small business

owner to seek the advice of an attorney or other professional when considering tax

liability. (LO 13-2)

4. Ask students to discuss the methods associated with the value of the new small

business. Why is this important to a new small business owner? Provide examples

and write them on a board or flip chart. Discuss each method as a class. (LO 13-2)

5. Ask students to explain why a new small business owner needs to develop an exit or

harvest plan for the new small business during the planning stage for the business.

(LO 13-1)

6. Ask students to discuss what the price/earning ratio is used to accomplish. How is it

calculated?: (LO 13-.2)

7. Have students discuss why a new small business owner should be concerned about

the procedures and process associated with selling a business. (LO 13-2)

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Chapter Thirteen: Exit/Harvest/Turnaround

Discussion Questions for Online/Hybrid classes

1. Which of the valuation methods do you think is the most important and why? (LO

13-2)

2. What are the four options from which a business owner can choose to exit the

business? Which one provides the simplest exit strategy? (LO 13-2)

3. What are the forms of bankruptcy available to a business owner? List at least three

forms of bankruptcy and discuss the form of bankruptcy that is beneficial to a sole

proprietor? Why? (LO 13-4)

4. Why is it important to consider an exit strategy when the new business is being

formed? (LO 13-1)

5. When would a business owner want to do a turnaround of the business? (LO 13-3)

6. How can a Board of Advisors assist a business owner with the challenges facing the

small business? (LO 13-3)

7. Why would a business owner want to close the business instead of reorganizing the

business? (LO 13-4)

8. What are the six important points for a business owner to consider regarding the

negotiations for selling the business? (LO 13-2)

9. How can a business owner assure the accuracy of the financial statements and

provide a level of legitimacy? (LO 13-2)

10.What is an initial public offering? (LO 13-2)

Discussion Questions for Online/Hybrid classes

1. Which of the valuation methods do you think is the most important and

why? (LO 13-2) Responses will vary. The valuation method chosen depends on

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Chapter Thirteen: Exit/Harvest/Turnaround

2. What are the four options that a business owner can choose from to exit

the business? Which one provides the simplest exit strategy? (LO 13-2)

3. What are the forms of bankruptcy available to a business owner? List at

least three forms of bankruptcy and discuss the bankruptcy that is

beneficial to a sole proprietor? Why? (LO 13-4)

Chapter 11- the firm receives immediate protection while it reorganizes

4. Why is it important to consider an exit strategy at the formation of the new

5. When would a business owner want to turnaround the business? (LO 13-3)

6. How can a Board of Advisors assist business owners with the challenges

they face in a small business? (LO 13-3) A Board of Advisors can offer new

7. Why would a business owner want to close the business instead of

reorganizing the business? (LO 13-4) Facts may show that the business

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Chapter Thirteen: Exit/Harvest/Turnaround

8. What are the six important points for a business owner to consider

regarding the sales negotiations? (LO 13-2)

a. use a profession mediator

9. How can a business owner assure the accuracy and provide a level of

legitimacy in their financial statements? (LO 13-2) The owner can have a

10.What is an initial public offering? (LO 13-2) An initial public offering (IPO) is

the offering of stock to the public.

Lecture Links

Lecture Link 13.1: Valuing the Business

(LO 13-2)

The authors in the text revealed that there are several standard valuation models and

rules of thumb for the established, publicly traded businesses. Use “Google” and search

“Business valuation”. Review the resources that provide pertinent information about

business valuation.

How could this information be useful to your business?

The authors in the text provide beneficial information that reveals the methods to

calculate the value of a firm. One interesting concept to consider is how a bank will

review a loan request if an individual or group who requires a loan wants to purchase a

business

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Chapter Thirteen: Exit/Harvest/Turnaround

Search the internet for information on “How banks evaluate loan requests”. Review the

data provided about how a bank will evaluate a loan request. What did you discover?

Lecture Link 13.3: Angels on the Directory for Entrepreneurs

A business owner considering a turnaround strategy for a business that requires

financial assistance could consider an angel investor to assist with the financial

strategies of the business. The Angel Capital Education Foundation (ACEF) is a

charitable organization that provides education in the discipline of angel investments.

However, this is not an organization that offers financing or loans. They provide a

directory of potential angel investors that a business owner can obtain as a potential

resource for the business. Visit the website at http://www.angelresourceinstitute.org.

Are there any resources listed on this site that could help your business?

Bonus Internet Exercises

Bonus Internet Exercise 13.1: Give Me 5

Entrepreneurs gain a competitive advantage when they initiate business contracts and

maintain business operations at the business. Planning ahead provides the

entrepreneur the opportunity to keep the business alive and operating at optimal levels

of efficiency.

One resource for women and minority entrepreneurs is Give Me 5. “Give Me 5 derives

its name from The Equity in Contracting for Women Act (2000), which stipulates that

federal contracting officers award 5% of all contracts to women-owned businesses (Give

Me 5, 2015)i.” This is a national program that is designed to educate women business

owners on how to apply for and secure federal procurement opportunities.” Visit the

website at http://www.giveme5.com/ and evaluate how this resource benefits the

entrepreneur.

1. How do these resources benefit women and minority entrepreneurs? Be specific.

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Chapter Thirteen: Exit/Harvest/Turnaround

2. Summarize the resources that are available to assist an entrepreneur. Do you

3. Review “The Latest News” and choose an interesting topic that you believe

enhances entrepreneurship. Briefly describe the topic or event and summarize

how it assists the entrepreneur.

Bonus Internet Exercise 13.2: Initial Public Offering (IPO)

(LO 13-2)

In this chapter we learned that an initial public offering (IPO) is the initial listing of a firm

as a public entity in the public equities market. Conduct research on the internet using

your favorite search engine and discover a company that implemented an IPO.

1. What company did you discover that implemented an IPO?

2. Who are the key officers of the organization?

3. What were the terms associated with the offering?

4. Do you believe that this was a good exit strategy? Why or why not?

Bonus Internet Exercise 13.-3: Business Valuation Tools

(LO 13-2)

A smart business person plans for a variety of circumstances when the business is

being started. Develop a plan to harvest the business and understand the process and

procedure used to value the business. Visit the website at www.exitadvisor.com

1. What did you discover at this website that can assist a business owner with the

valuation of a business?

2. What other information did you discover that can assist a business owner with

the sale of the business?

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Chapter Thirteen: Exit/Harvest/Turnaround

3. Why does a business owner establish an accurate value of a firm?

4. Why does a business owner consider an exit strategy of the firm?

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i Give Me 5. (2009). http://www.giveme5.com/. Retrieved on February 20, 2015