CBB Exit Planning & Seller Preparation 1

Question 1

When should a business owner ideally begin exit planning before selling their business?

Accepted Answer

3-5 years before the intended sale

Answer

Exit planning experts recommend starting 3-5 years before the intended sale to allow sufficient time to improve financials, reduce dependencies, and systematically maximize business value.

Question 2

What does 'Seller's Discretionary Earnings' (SDE) measure in the context of exit planning?

Accepted Answer

The total economic benefit a single owner-operator derives from the business

Answer

SDE measures the total financial benefit flowing to an owner-operator, including salary, perks, and net income, and is the primary metric used to value small businesses.

Question 3

Which action BEST improves a business's transferability and value before a sale?

Accepted Answer

Documenting standard operating procedures and creating training manuals

Answer

Documented SOPs and training manuals create a transferable, scalable business that reduces buyer risk and signals the business can operate without the current owner.

Question 4

What is the primary purpose of a business readiness assessment conducted before listing?

Accepted Answer

To identify weaknesses that should be addressed before bringing the business to market

Answer

A readiness assessment identifies operational, financial, and legal gaps that could reduce value or derail a sale if left unaddressed before the business is listed.

Question 5

A business that generates 75% of its revenue from a single customer is said to have what issue?

Accepted Answer

Customer concentration risk

Answer

Customer concentration risk refers to over-reliance on a single or small number of customers, which significantly increases buyer risk and reduces the business's marketability and valuation.

(CBB) Certified Business Brokers Practice Test

(CBB) Certified Business Brokers Practice Test

CBB Exit Planning & Seller Preparation 1