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

Key man dependency occurs when a business cannot function effectively without a specific person — typically the owner — making the post-closing transition risky and uncertain for buyers.

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

Diversified, recurring revenue streams directly reduce buyer risk, which is the primary driver of higher valuation multiples in business acquisitions.

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 CIM is the primary marketing document prepared by the business broker that presents the business's financials, operations, management, and growth potential to prospective buyers.

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

A QoE analysis verifies that reported earnings are real, recurring, and accurately represent the business's ongoing financial performance, giving buyers confidence before closing.

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

Predictable recurring revenue with diversified customers dramatically reduces buyer risk, which is the single strongest driver of premium valuation multiples.

(CBB) Certified Business Brokers Practice Test

(CBB) Certified Business Brokers Practice Test

CBB Exit Planning & Seller Preparation 2