CBB Exit Planning & Seller Preparation 2

Question 1

What is 'key man dependency' and why does it concern buyers during a business acquisition?

Accepted Answer

When the business's success is heavily reliant on one individual, creating transition risk if they depart

Answer

A legal requirement for key employees to sign non-solicitation agreements

Answer

A seller financing arrangement where the seller retains equity post-closing

Answer

When a business depends on a single key supplier for its core product

Question 2

A business broker advises a client to improve EBITDA multiple before sale. Which strategy is MOST effective?

Accepted Answer

Building diversified customer relationships and securing recurring revenue contracts

Answer

Cutting marketing spend to boost short-term profitability metrics

Answer

Taking on additional debt to fund rapid pre-sale expansion

Answer

Reducing employee benefits to lower overhead costs quickly

Question 3

What is a Confidential Information Memorandum (CIM) in a business sale?

Accepted Answer

A comprehensive marketing document prepared by the broker describing the business to qualified buyers

Answer

A legal agreement preventing buyers from disclosing sensitive business information

Answer

A government filing required for all asset sales exceeding $1 million

Answer

An audited financial statement prepared by an independent CPA for due diligence

Question 4

In exit planning, a 'Quality of Earnings' (QoE) analysis is primarily used to:

Accepted Answer

Verify the accuracy and sustainability of the business's reported earnings

Answer

Determine the business's commercial credit rating with lenders

Answer

Calculate the seller's estimated capital gains tax liability

Answer

Assess the physical condition and replacement cost of business assets

Question 5

Which business characteristic typically commands the HIGHEST valuation multiple from buyers?

Accepted Answer

Predictable recurring revenue with a diversified, low-concentration customer base

Answer

High owner involvement in all daily operations and customer decisions

Answer

Rapid but inconsistent revenue growth with high customer churn

Answer

Heavy reliance on physical assets and inventory with thin margins

Question 6

A seller wants to maximize sale proceeds. Which approach should a business broker MOST recommend?

Accepted Answer

Create a controlled competitive process among multiple pre-qualified buyers simultaneously

Answer

Accept the first strong offer received to avoid buyer fatigue and deal risk

Answer

List the business broadly and publicly to attract the maximum number of buyers

Answer

Set the asking price below fair market value to generate rapid interest and quick close

Question 7

Which financial record is MOST critical for a business owner to maintain consistently in the years leading up to a sale?

Accepted Answer

Clean, accurate, and consistent profit and loss statements across multiple years

Answer

The owner's personal federal and state tax returns for three years

Answer

Detailed accounts receivable aging reports by customer

Answer

Annual employee performance reviews and compensation records