CBB Marketing & Deal Structuring 2 — Questions and Answers
Question 1: A business broker is preparing a Confidential Business Review (CBR) for a manufacturing company. Which section should appear FIRST to capture buyer interest?
- Detailed financial statements
- Executive summary highlighting key value drivers (Correct answer)
- List of all employees and their salaries
- Equipment inventory with depreciation schedules
Correct answer: Executive summary highlighting key value drivers
The executive summary is placed first to immediately communicate the business's value proposition and entice buyers to read further.
Question 2: When marketing a business with below-market owner compensation, a broker should present this to buyers as:
- A red flag requiring disclosure
- A discretionary add-back that increases effective EBITDA (Correct answer)
- An indication of poor management
- A liability that reduces the purchase price
Correct answer: A discretionary add-back that increases effective EBITDA
Below-market owner compensation is a legitimate add-back that increases the seller's discretionary earnings (SDE), making the business more attractive to buyers.
Question 3: A seller insists on an all-cash deal at full asking price. The broker's BEST response is to:
- List the business at the seller's terms immediately
- Explain that all-cash deals often result in a lower sale price and fewer qualified buyers (Correct answer)
- Refuse the listing unless seller financing is included
- Contact only private equity buyers who pay all cash
Correct answer: Explain that all-cash deals often result in a lower sale price and fewer qualified buyers
All-cash requirements significantly narrow the buyer pool and often result in lower offers, so brokers should educate sellers on the trade-offs.
Question 4: In a deal where the buyer assumes an existing SBA loan, the broker must ensure:
- The seller's personal guarantee is automatically released at closing
- SBA approval of the loan assumption before closing (Correct answer)
- The interest rate is renegotiated to current market rates
- The buyer provides 50% down payment regardless of loan terms
Correct answer: SBA approval of the loan assumption before closing
SBA loan assumptions require lender and SBA approval, which must be obtained prior to closing for the transaction to be valid.
Question 5: Which marketing channel is MOST effective for maintaining confidentiality while reaching qualified buyers for a mid-market business?
- Local newspaper classified ads
- Social media posts with the business name
- Blind listings on business-for-sale aggregator websites (Correct answer)
- Cold calls to competitors naming the business
Correct answer: Blind listings on business-for-sale aggregator websites
Blind listings omit identifying details, allowing brokers to gauge buyer interest while protecting the seller's confidentiality.
Question 6: A buyer proposes structuring $200,000 of the purchase price as a non-compete agreement payment. The PRIMARY tax benefit to the buyer is:
- The payment is fully deductible in the year paid
- Non-compete payments are amortized over 15 years under IRC Section 197 (Correct answer)
- The payment avoids self-employment tax
- Non-compete payments are exempt from capital gains tax
Correct answer: Non-compete payments are amortized over 15 years under IRC Section 197
Under IRC Section 197, non-compete covenant payments are amortized over 15 years, providing the buyer a long-term tax deduction.
Question 7: During due diligence, a buyer discovers the target business has three customer concentration risk where one client represents 45% of revenue. The broker should:
- Terminate the listing immediately
- Help structure an earnout tied to retention of that key customer (Correct answer)
- Advise the seller to hide this information
- Reduce the asking price by exactly 45%
Correct answer: Help structure an earnout tied to retention of that key customer
An earnout tied to key customer retention bridges the value gap by giving the buyer protection while allowing the seller to achieve full price if the customer stays.
CBB Marketing & Deal Structuring 2
A business broker is preparing a Confidential Business Review (CBR) for a manufacturing company.
Which section should appear FIRST to capture buyer interest?