CBB CBB Business Operations & Profitability Assessment

Question 1

What does 'Seller's Discretionary Earnings' (SDE) represent in a small business context?

Accepted Answer

Pre-tax earnings plus owner's compensation and non-recurring expenses added back

Answer

The seller's personal savings account balance

Answer

The net income after all taxes and depreciation

Answer

The business's gross revenue before any deductions

Question 2

Which metric is most commonly used to value mid-market businesses instead of SDE?

Accepted Answer

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

Answer

Gross revenue multiplier

Answer

Net profit margin percentage

Answer

Book value of tangible assets

Question 3

What is a 'recast' financial statement?

Accepted Answer

An adjusted income statement that normalizes earnings by adding back owner perks and one-time expenses

Answer

A corrected tax return filed after an audit

Answer

A bank statement reformatted for loan applications

Answer

A financial forecast prepared for the next five years

Question 4

Why is revenue trend analysis important when assessing a business for sale?

Accepted Answer

It reveals whether the business is growing, stable, or declining, affecting value and saleability

Answer

It determines the broker's commission rate

Answer

It identifies the best advertising channels for the listing

Answer

It calculates the business's inventory turnover ratio

Question 5

What does a high gross margin indicate about a business?

Accepted Answer

The business retains a large portion of revenue after direct costs, suggesting pricing power or efficient operations

Answer

The business has high employee turnover

Answer

The business is spending too much on marketing

Answer

The business has excessive inventory levels

Question 6

Which operational factor can significantly reduce a business's transferability to a new owner?

Accepted Answer

The business being overly dependent on the seller's personal relationships or specialized skills

Answer

The business having multiple product lines

Answer

The business operating in a growing industry

Answer

The business having a documented operations manual