Deck 3: Finding Opportunity in an Existing Business

Question 1

Records of information that a buyer should request and review during due diligence include all of the following except ________.

A) Tax returns for the previous three to five years
B) Bank deposit tickets for the past two years
C) Employee records and turnover history for five years
D) Supplier lists and references
E) Personal correspondence

Answer 1

E

Question 2

Which of the following is not a method to determine the value of a business?

A) Worth of stockholders' equity
B) Asset valuation
C) Earnings valuation
D) Cash flow valuation
E) Sentimental valuation

Answer 2

E

Question 3

The majority of small businesses that change owners are still in business five years later, about ________ the rate of start-up survival.

A) Double
B) Triple
C) Four times
D) Fifty times
E) None of the above

Answer 3

A

Question 4

With a family business, much like the acquisition of any going concern, there is a chance to build upon its ________ and to turn around ________ aspects.

A) Strengths, problematic
B) Strengths, awkward
C) Gifts, problematic
D) Strengths, tricky
E) None of the above

Question 5

Becoming a successful entrepreneur is a process that can be ________ and ________ by purchasing an operating business.

A) Simplified, accelerated
B) Simplified, stunted
C) Complicated, accelerated
D) Convoluted, accelerated
E) Simplified, enhanced

Question 6

In a whole business sale, the buyer acquires ________ of the company, known or unknown.

A) All assets and liabilities
B) Only the assets
C) None of the liabilities
D) The building
E) The customers

Question 7

Decision-making criteria and priorities when searching for an existing business include ________.

A) Industry
B) Geography
C) Size
D) Life cycle
E) All of the above

Question 8

Which of the following is a way of looking at earnings valuation?

A) Future earnings under new ownership
B) Future earnings under current ownership
C) Past earnings under new ownership
D) All of the above
E) None of the above

Question 9

Cash flow valuation uses projected future cash flows and the ________ to arrive at a figure.

A) Time value of money
B) Nominal value of money
C) Value of investment
D) Future customer demand
E) All of the above

Question 10

A legal document enumerating the type of information that is to remain confidential is called a ________.

A) Nondisclosure agreement
B) Disclosure agreement
C) Nondisclosure letter
D) Noncompete agreement
E) None of the above

Question 11

Due diligence can be defined as ________.

A) The exercise of reasonable care in the evaluation of a business opportunity
B) The exercise of sensible care in the evaluation of a business opportunity
C) The exercise of rational care in the evaluation of a business opportunity
D) The exercise of judicious care in the evaluation of a business opportunity
E) The exercise of equitable care in the evaluation of a business opportunity

Question 12

It is appropriate to interview all of the following except ________.

A) Former suppliers
B) Customers
C) Employees
D) Family members
E) All of the above are appropriate to interview.

Question 13

Discovery of potential problems when buying a business is the responsibility of the ________.

A) Buyer
B) Seller
C) Legal authorities
D) Employees
E) Customers

Question 14

All of the following can help reduce your learning curve except ________.

A) Having transferrable skills from prior experience that fit the business
B) Seeking out employment in the type of company you want to purchase
C) Volunteer activities
D) Read books about the industry
E) All of the above can reduce your learning curve.

Question 15

It is ________ to buy a going concern for less than it would cost to start a similar company.

A) Possible
B) Impossible
C) Likely
D) Improbable
E) Definite

Question 16

A common undisclosed reason to sell a business is not ________.

A) Lack of sufficient cash flow
B) Unprofitability
C) Entrance of new competitors
D) Pending or active litigation
E) Wanting to retire

Question 17

________ is/are a source for leads regarding businesses for sale.

A) Your current employer
B) Customers
C) Suppliers
D) Competitors
E) All of the above

Question 18

Two primary risks start-ups face are ________.

A) Not finding a sufficient supplier and not being able to operate profitably
B) Not finding a sufficient market and not being able to operate profitably
C) Not finding a sufficient market and not being able to do accounting profitably
D) Not finding sufficient advertising opportunities and not being able to operate profitably
E) Not finding a sufficient market and not being able to price profitably

Question 19

Examples of poor fit include ________.

A) Personality
B) Lifestyle
C) Work environment
D) All of the above
E) None of the above

Question 20

Buying a successful business can help an entrepreneur in all of the following ways except ________.

A) Reducing risk
B) Issues of location
C) Customer development
D) Product or service delivery
E) All of the above are helpful.

Question 21

As the buyer in a negotiation, you are working to do all of the following except ________.

A) Secure the best price
B) Reduce your initial investment capital costs
C) Maximize returns
D) Give the buyer the most you can afford
E) None of the above

Question 22

Which of the following may not be an undisclosed issue when buying a business?

A) The current owner is in poor health.
B) Dissatisfied customers
C) Failure to keep up with market trends
D) Patents are no longer valid.
E) Equipment is obsolete.

Question 23

Which of the following can jump start the ownership process?

A) Buying a business you already understand
B) Starting in a new industry
C) Not understanding the business
D) Experiencing a business for the first time
E) All of the above

Question 24

You must consider the fit of the business you are buying to your personal habits and interests.

Question 25

A firm that has two or more members of the same family managing and/or working in it and that is owned and operated for the benefit of that family's members is called a ________.

A) Family business
B) Mob business
C) Domestic business
D) Household business
E) None of the above

Question 26

It is difficult to fall in love with the idea of owning a business and overlook the pitfalls and problems.

Question 27

Liquidation value is a determination of the net cash that could be obtained through disposing of assets via a quick sale, with liabilities either paid off or negotiated away.

Question 28

Business ________ buy and sell businesses for a fee, in essence serving as a matchmaker.

A) Brokers
B) Agents
C) Contacts
D) Managers
E) Consultants

Question 29

An overly eager seller, or a price that sounds too good to be true, is never a sign that the opportunity actually is too good to be true.

Question 30

Typically, you will have to secure more capital to buy a business than to start one up because you are paying for the ________.

A) Established customer base
B) Supplier relationships
C) Skilled employees
D) All of the above
E) None of the above

Question 31

With a family business, much like the acquisition of any going concern, there is a chance to build upon its strengths and to turn around problematic aspects.

Question 32

Sellers may be hesitant to disclose too much information to potential buyers.

Question 33

Nonfinancial variables to consider in valuation include ________.

A) Market space
B) Competitive environment
C) Legal and regulatory status of the firm
D) Customer goodwill
E) All of the above

Question 34

Today, a quick scan of the Internet for information on the company and/or owner can provide ready access to information such as ________.

A) Customer satisfaction
B) Press coverage
C) Legal issues
D) Customer dissatisfaction
E) All of the above

Question 35

The most common standards for asset valuation do not include which of the following?

A) Book value
B) Adjusted book value
C) Liquidation value
D) Adjusted liquidation value
E) Replacement value

Question 36

Buying into a business over time is an option that may permit a current owner to separate from a company over time, receive a stream of payments, and support customer loyalty.

Question 37

________ is not a sign of potential problems when practicing due diligence.

A) Inconsistent information
B) Refusal to provide contact names
C) Hesitancy to open up to questions
D) Conflicting information
E) Accurate information

Question 38

Difficulty in finding and retaining necessary staff is a common undisclosed reason to sell a business.

Question 39

Approximately 50,000 businesses change ownership each year.

Question 40

Becoming a successful entrepreneur is a process that can be simplified and accelerated by purchasing an operating business.

Question 41

Discuss some of the potential pitfalls of buying an existing business that might be detrimental to your business idea.

Question 42

Discuss some of the reasons why buying an existing business would benefit you.

Question 43

Friends and family are not viable sources for leads on existing businesses that might be for sale.

Question 44

How would you execute due diligence? What areas could you do yourself? In what areas would you need help, and who would you recruit to assist you?

Question 45

No matter what the price, in negotiation you must always close the deal with the purchase of your targeted business.

Question 46

The offer price and the maximum amount you are willing to pay should encompass all of the financial factors you have identified.

Question 47

What method(s) of valuation would you use? Why?

Question 48

What methods discussed in the text would you use in finding leads on existing businesses? Which methods would work the best? Why?

Question 49

Although buying a business has many advantages that may translate into market benefits, you will also take over its challenges and problems.

Question 50

Employees are not a particularly valuable part of an acquisition.