CBB CBB Transaction Management & Due Diligence 1

Question 1

What is the primary purpose of due diligence in a business sale transaction?

Accepted Answer

To verify the accuracy of information provided by the seller

Answer

Due diligence allows the buyer to verify seller representations and uncover any material issues before closing.

Question 2

Which document typically initiates the formal due diligence process in a business sale?

Accepted Answer

Letter of intent (LOI)

Answer

A letter of intent signals serious buyer interest and typically triggers the due diligence phase.

Question 3

What does a CBB broker typically coordinate during the transaction management phase?

Accepted Answer

Managing information flow between buyer, seller, attorneys, and accountants

Answer

Transaction management involves coordinating all parties and ensuring timely exchange of documents and information.

Question 4

Which financial records are most critical for a buyer to review during due diligence?

Accepted Answer

Three to five years of tax returns and P&L statements

Answer

Tax returns and profit & loss statements provide verified financial history necessary to validate the business's earnings.

Question 5

What is a 'contingency' in a business purchase agreement?

Accepted Answer

A condition that must be satisfied for the sale to proceed

Answer

Contingencies are conditions, such as financing approval or satisfactory due diligence, that must be met before the transaction closes.

(CBB) Certified Business Brokers Practice Test