Question 1

Determining the price offered for a business should begin by adding the value of the tangible and intangible assets with the sales potential of the business.

Accepted Answer

False

Question 2

You should never ask the owners of a business where you are a customer whether they are interested in selling their business.

Accepted Answer

It's not inherently wrong to ask business owners if they are interested in selling their business, as long as it's done respectfully and at an appropriate time. This could potentially lead to opportunities for both parties.

Question 3

A major advantage of purchasing an existing business is that the customers are familiar with the location.

Accepted Answer

When purchasing an existing business, the customers are already aware of the business location and may continue to patronize the business under the new ownership. This can save time and money on marketing and advertising efforts to attract new customers.

Question 4

Asking the owner of a business where you have been a regular customer whether the business is for sale may be one source of finding a potential new business.

Accepted Answer

Yes, asking the owner of a business whether it is for sale may provide information about potential new business opportunities.

Question 5

Word-of-mouth information through friends and family may turn up business opportunities that do not appear through formal channels.

Accepted Answer

Word-of-mouth referrals and recommendations from friends and family are often a valuable source of business opportunities that may not be found through traditional channels.

Question 6

Due diligence is the process of fact finding to determine the total condition of a business being considered for purchase.

Accepted Answer

Due diligence involves conducting a thorough investigation of a business to assess its financial, legal, and operational status before making a purchase decision.

Question 7

Buying an existing business is becoming a more popular way to own a small business.

Accepted Answer

According to recent statistics, buying an existing business is becoming more common than starting a new business from scratch.

Question 8

Having an established supplier relationship is an advantage of buying an existing business.

Accepted Answer

Buying an existing business means inheriting its established relationships, including those with suppliers. This can be a major advantage as it saves time and effort in searching for and building new supplier relationships.

Question 9

The fact that a business's image is difficult to change is a distinct advantage when taking over an existing business.

Accepted Answer

A business's established image can be a disadvantage if it is negative, as changing public perception can be challenging and costly.

Question 10

Real estate brokers may be a good source of potential businesses for sale since their listings may include business real estate.

Accepted Answer

Real estate brokers often have listings that include business properties, making them a potential source of businesses for sale.

Question 11

Industry averages exist comparing expenses to sales for every size and type of business.

Accepted Answer

Industry averages are available for every size and type of business which can be used to compare expenses to sales.

Question 12

Existing businesses do not have to be scrutinized carefully to determine whether they are a worthwhile investment of time and money.

Accepted Answer

Even existing businesses need to be scrutinized carefully to determine if they are a worthwhile investment. Factors such as financial performance, market trends, competition, and potential for growth must be evaluated before investing time and money in an existing business.

Question 13

If an existing business is purchased, the buyer may be potentially liable for past business contracts.

Accepted Answer

When purchasing an existing business, the buyer may be responsible for assuming all of the seller's liabilities, including past business contracts. It is important for the buyer to conduct due diligence to identify and understand any potential liabilities before finalizing the purchase.

Question 14

There are not as many factors that could contribute to the sale of a business as there are reasons for business liquidations.

Accepted Answer

While there are many reasons for business liquidations (such as bankruptcy, retirement, or market conditions), there are also many factors that could contribute to the sale of a business (such as profitability, growth potential, or strategic alignment with a buyer).

Question 15

It is important not to let emotions cloud judgment when making business purchase decisions.

Accepted Answer

Emotions can lead to bias and irrational decision making, which can negatively impact the success of a business. It is important to approach purchasing decisions objectively and consider all relevant factors.

Question 16

When the owner of a business decides to sell, the reasons the owner tells prospective buyers may be somewhat different than the actual reasons.

Accepted Answer

This is true. Owners may present reasons such as retirement or pursuing other opportunities, but the actual reason for selling could be financial difficulties or a decline in the business's performance.

Question 17

Brokers take classes and pass examinations to become certified business intermediaries.

Accepted Answer

Brokers do generally need to take classes and pass exams to become certified business intermediaries.

Question 18

When analyzing the financial statements of the business, it is important to rely most heavily on the most recent year of operation.

Accepted Answer

It is important to analyze multiple years of financial statements in order to identify trends and patterns in the business's financial performance. Looking at only one year may not provide a complete picture of the company's financial health.

Question 19

A key factor in business valuation is review of what other companies in the industry have sold for.

Accepted Answer

The review of what other companies in the industry have sold for is known as market comparables analysis, and it is a commonly used valuation method in business valuation. It provides insights into the market dynamics, trends, and expectations, and helps to determine the fair market value and potential sale price of a business.

Question 20

When discussing the purchase of an existing business, it is not necessary to get verbal understandings in writing from the seller.

Accepted Answer

It is highly recommended to get all agreements and understandings in writing to avoid any misunderstandings or disputes in the future. Verbal agreements may not hold up in court.

Quiz 6: Taking Over an Existing Business