CBB Transaction Management & Due Diligence Flashcards

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

Answer: To verify the accuracy of information provided by the seller

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

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

Answer: Letter of intent (LOI)

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

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

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

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

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

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

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

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

Answer: A condition that must be satisfied for the sale to proceed

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

Why is a transition period often included in a business sale agreement?

Answer: To give the buyer time to learn operations from the seller

A transition period helps ensure continuity by having the seller train the buyer and introduce them to key customers and staff.