Download CEPA Flashcards: Session 5 - Family Business, Teams, & ESOPs and more Exams Finance in PDF only on Docsity!
CEPA Term Flashcards - Session 5 Questions and
Answers
What is familiness? o :## A unique bundle of resources resulting from the interaction of family, individuals and business. Not genetically predetermined. True or false, family businesses tend to outcompete non-family businesses? o :## True How do you address team challenges early in the process? o :## •Education (owner and advisor) •Chapter projects & community outreach •Know the methodology...and your place in it •Workshop demonstrating the holistic approach •Speaking and writing builds credibility •Website •Happy Hours How do you handle when a team already exists upon your arrival on scene? o :## Team building upfront and buy-in on a holistic approach. What makes an effective team (TCCAR)?
o :## Trust Conflict (Resolution) Commitment Accountability Results Reasons why advisors and professionals will not work well within a team include: o :## A) Fear of being displaced B) Fear of losing control or not being in control C) Fear of losing their relationship with the owner D) Lack of knowledge or experience E) Creation of inner team politics What is collaboration? o :## A cooperative arrangement where two or more people, which may or may not have a previous relationship, work jointly towards a common goal. What two things do you need to the commitment of the members of your team? o :## Clear organizing principle, and buy-in from all members to work towards that goal. What are the organizing principles of a CEPA team?
o :## 1) Share common experiences
- Become familiar with how each member prefers to communicate and make decisions
- Get to know one another socially What is are corrosive elements within a team? o :## A) Absence of trust B) Conflict avoidance C) Ambiguity D) Lack of accountability What are cons/disadvantages of ESOPS? o :## •ESOP can only pay Fair Market Value o Strategic premium might be gained by sale to industry participant or 'roll-up'
- Not an appropriate liquidity strategy for a company with a weak management team
- Regulatory Environment [DOL] can be complex
- Owners may not get 100% "cash out" at closing o Even with bank borrowing, a 100% sale will require taking back a "seller note" for a portion of the sale price
- Repurchase Obligation post-formation must be planned for by the Company What is the standard of value for ESOPS?
o :## Standard of Value for ESOPS = FMV (for the IRS), plus other considerations like enterprise value and Lack of marketability discount State of Owner Readiness Survey And Teams (2017, Twin Cities Results): ____% of business owners indicated they have not established a formal transition advisory team o :## 74% of business owners indicated they have not established a formal transition advisory team State of Owner Readiness Survey And Teams (2017, Twin Cities Results): The CPA was considered the most trusted advisor; 34% chose the CPA as most trusted advisor o :## The CPA was considered the most trusted advisor; ________% chose the CPA as most trusted advisor State of Owner Readiness Survey And Teams (2017, Twin Cities Results): For those owners who had a transition team, many recognized the need for a CPA (______%)
o :## 27% indicated peer group as most trusted advisor State of Owner Readiness Survey And Teams (2017, Twin Cities Results): ______% indicated lawyer as most trusted advisor o :## 16% indicated lawyer as most trusted advisor State of Owner Readiness Survey And Teams (2017, Twin Cities Results): ______% indicated spouse as most trusted advisor o :## Only 12% indicated spouse as most trusted advisor State of Owner Readiness Survey And Teams (2017, Twin Cities Results): ______% indicated financial advisor as most trusted advisor o :## Only 8% indicated financial advisor as most trusted advisor State of Owner Readiness Survey And Teams (2017, Twin Cities Results): Insurance and banker were below____%
o :## Insurance and banker were below 2% What are potential cons of working within a team? o :## Slower production More expensive More complicated o :## i) Stock Appreciation Rights ii) Phantom Stock iii) Stock Options iv) 100% S-Corporation ESOPs often use Synthetic Equity to maintain tax advantage v) ESOP Trustee agreement on form and dilution % allowed for these plans What investments are considered QRP (Qualifying Replacement Property) o :## Stocks Convertible Bonds Corporate fixed rate bonds Corporate floating rate notes What are the advantages of a 1042 Rollover (involving QRP)?
H) Desire to buy-out a minority shareholder I) Limited third-party / strategic buyers in market What investments are NOT considered QRP (Qualifying Replacement Property) o :## Bank CDs Mutual Funds ETFs US Gov Bonds Foreign Securities REITS Master Limited Partnerships 80% of all ESOPs are in companies with less than ____ employees o :## 300 What is the maximum tax deferral percentage that can be achieved through an ESOP? o :## 100% What is the standard transition time for implementing an ESOP? o :## 4 to 6 years
What are some seller advantages of an ESOP? o :## i) Retention and continuity of local HQ / jobs ii) "Legacy" - Company can continue and be sustained iii) Diversify Seller's net worth (can sell portion, retain portion) iv) Known Buyer - controls timing and communication v) Owner can retain operational and board control during transition What are 4 advantages of working in teams? o :## Often and better overall, more well-connected prouct Mindshare Referrals: Current and future Emotional Intelligence What are 4 disadvantages of working in teams? o :## Group Think Can be slower More Expensive More Complicated
