Deck 10: Buying a Business

Question 1

The most important intangible assets to an owner of a business are all of the following,except:

A)Goodwill
B)Franchise rights
C)Inventory
D)Trademarks

Answer 1

C

Question 2

All of the following are financial factors you must consider when buying a business,except:

A)The trend in profits
B)The background of the purchasing agent
C)Ratio analysis
D)Cash flow

Answer 2

B

Question 3

It is generally conceded that the most important issue facing most family businesses is the question of succession.

Answer 3

True

Question 4

All of the following are balance sheet methods of evaluation,except:

A)Book value
B)Modified book value
C)Liquidation value
D)Depreciation value

Question 5

About 80 percent of all family businesses report that they have a succession plan in place.

Question 6

The legal aspects of doing business are becoming increasingly more complex and the use of a lawyer is practically a fact of business life.

Question 7

There are many accounting techniques which allow business owners to present a less than accurate picture of the financial situation of their company.

Question 8

Which of the following is considered a disadvantage of buying an existing business?

A)Acquiring a "going concern" with a good past history increases the likelihood of a successful operation for the new owner.
B)Has an established clientele.
C)Established relationships with banks,trade creditors,and other sources of financial support.
D)Present personnel may be unproductive and have a poor track record.

Question 9

Which of the following financial evaluations totally ignores the future earnings capability of the business?

A)Earnings-based methods
B)Balance sheet methods
C)Income statement derivation
D)Cash flow appraisal

Question 10

It is estimated that approximately ____ percent of all businesses in North America are family businesses.

A)10
B)25
C)50
D)80

Question 11

All of the following are advantages of buying an existing business,except:

A)Buying an existing business can reduce the risk.
B)Acquiring a "going concern" with a good past history increases the likelihood of a successful operation for the new owner.
C)Has an established clientele.
D)Poor location.

Question 12

Which of the following is not one of the key marketing considerations when thinking about buying an existing business?

A)The company's trading area
B)The recent changes in the market
C)Population demographics
D)Interest rate fluctuations

Question 13

Which of the following is an advantage to buying an existing business? HYPERLINK ""

A)The physical facilities (the building and equipment)and product line may be old and obsolete.
B)As a buyer,you inherit any ill will that may exist toward the established firm among customers or suppliers.
C)Established business has a proven location.
D)The inventory may contain a large amount of "dead" stock.

Question 14

Confidential advisors,such as your banker,are a difficult source to use when it comes to finding a new business,since they generally share their information with several of their clients.

Question 15

Acquisition candidates may include present or potential competitors of your current employer,suppliers,customers,and perhaps even your present employer.

Question 16

The data provided by the SME Benchmarking Tool database of Industry Canada can provide performance benchmarks for the financial planning of both startup and established businesses.

Question 17

Which of the following reasons for why an existing business is up for sale should concern you?

A)The owner wants to retire.
B)The owner is ill and cannot handle the responsibilities.
C)The owner wishes to pursue other interests.
D)The owner cannot raise adequate financing.

Question 18

When purchasing an existing business,it is generally advised that you replace all of the key personnel with people who are loyal to you,and whom you trust.

Question 19

All of the following are subsystems in the systems view of family business,except:

A)Environment
B)Family
C)Business
D)Ownership

Question 20

In assessing the balance sheet of the prospective acquisition,you need not determine the actual or real value of the tangible assets,only that of intangible assets.

Question 21

List and briefly describe the five potential sources for finding an existing business to buy.

Question 22

How can you prepare for the running of a family business?

Question 23

What is the rule-of-thumb for evaluating businesses with few tangible assets?

Question 24

What makes a family business so challenging?

Question 25

Briefly describe the five most important financial factors you must consider before buying a business.

Question 26

What might chronically low cash flow indicate?

Question 27

When considering purchasing an existing business you should pay careful attention to the business's market penetration.What might increasing market share indicate? Decreasing market share?

Question 28

Describe what is meant by "earn-out".