CBB CBB Transaction Management & Due Diligence 2

Question 1

What is a 'data room' in the context of a business sale?

Accepted Answer

A secure repository where confidential business documents are shared with vetted buyers

Answer

A data room—often virtual—provides qualified buyers controlled access to sensitive business documents during due diligence.

Question 2

Which of the following is an example of operational due diligence?

Accepted Answer

Reviewing customer contracts and key supplier agreements

Answer

Operational due diligence examines contracts, supplier relationships, and business processes that drive ongoing revenue.

Question 3

What risk does a broker help mitigate by structuring an earnout provision?

Accepted Answer

The risk that future performance will not match historical results

Answer

An earnout ties a portion of the purchase price to future business performance, bridging valuation gaps based on projected results.

Question 4

A buyer discovers during due diligence that a key customer accounts for 60% of revenue. This is an example of what type of risk?

Accepted Answer

Customer concentration risk

Answer

Customer concentration risk arises when a disproportionate share of revenue depends on a single client, threatening stability if that client leaves.

Question 5

What is the role of a Quality of Earnings (QoE) report in a business transaction?

Accepted Answer

To independently verify and analyze the accuracy and sustainability of the seller's reported earnings

Answer

A QoE report, prepared by a third-party accountant, validates that reported earnings are accurate and recurring rather than inflated.

(CBB) Certified Business Brokers Practice Test