CBB Exit Planning & Seller Preparation 3

Question 1

What is an 'earnout' provision in a business sale agreement?

Accepted Answer

A portion of the purchase price paid to the seller based on the business achieving future performance targets

Answer

A clause requiring the seller to repay the broker's commission if the deal fails

Answer

A penalty imposed on the buyer for missing agreed-upon closing deadlines

Answer

An employment agreement ensuring the seller receives a salary from the buyer post-closing

Question 2

How long is a seller typically expected to remain with the business in a transition capacity after closing?

Accepted Answer

6 months to 2 years to ensure full knowledge transfer

Answer

1-2 weeks to hand over keys and access credentials

Answer

30-90 days for a basic operational handover

Answer

5-10 years under a long-term management contract

Question 3

What is 'goodwill' in the context of a business sale valuation?

Accepted Answer

The intangible value above net tangible assets, including reputation, brand, and customer relationships

Answer

The current replacement cost of the business's physical equipment and fixtures

Answer

The total value of the business's outstanding accounts receivable

Answer

The seller's remaining equity after all business debts are satisfied at closing

Question 4

Regarding asset sales versus stock sales, which statement is MOST accurate from a tax perspective?

Accepted Answer

Sellers generally prefer stock sales because proceeds may qualify for lower long-term capital gains tax rates

Answer

Buyers generally prefer stock sales because they inherit the seller's favorable tax history

Answer

Asset sales are always more advantageous for both buyers and sellers in every situation

Answer

Stock sales require fewer legal documents and less attorney involvement than asset sales

Question 5

Which is a key benefit of seller financing in a business sale?

Accepted Answer

It signals the seller's confidence in the business and helps close deals lacking full bank financing

Answer

It eliminates the need for the buyer to conduct thorough due diligence

Answer

It allows the seller to legally avoid paying capital gains taxes on sale proceeds

Answer

It immediately transfers all pre-existing business liabilities to the buyer at closing

Question 6

What is the primary purpose of a non-compete agreement in a business sale?

Accepted Answer

To protect the buyer from the seller starting or joining a competing business after the sale

Answer

To prevent the buyer from reselling the business within a specified holding period

Answer

To ensure all of the seller's key employees remain with the business post-closing

Answer

To limit the buyer's ability to expand the business into new geographic markets

Question 7

When preparing a business for sale, which BEST demonstrates 'business systems' that increase transferability to a new owner?

Accepted Answer

Written procedures, training manuals, and documented workflows any competent employee can follow

Answer

The owner personally handling all customer complaints and key supplier negotiations

Answer

Verbal agreements with key suppliers based solely on personal relationships with the owner

Answer

A proprietary business model that only the founder fully understands and can operate