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

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

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

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

Question 5

One of the advantages of buying a new business is that the equipment needed for production is already available, and its limitations and capabilities are known in advance.

Question 6

One reason why seeking the advice of an accountant is so important is small business owners often have items on the financial statements that may not be required for the normal operations of the business.

Question 7

Assessing and evaluating an existing firm is a straightforward process that does not require the assistance of lawyers and accountants.

Question 8

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 9

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 10

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 11

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 12

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

Question 13

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

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

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

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

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 16

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

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

Question 17

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 18

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 19

Poor union/management relationships is considered an advantage of business a business.

Question 20

Business brokers and commercial real estate agents are professionals who work at bringing buyers and sellers together for a commission.

Question 21

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

Question 22

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

Question 23

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 24

Describe what is meant by "earn-out".

Question 25

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

Question 26

Using a Venn diagram, sketch a systems view of family business.

Question 27

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 28

What makes a family business so challenging?

Question 29

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

Question 30

What might chronically low cash flow indicate?

Question 31

Industry Canada, as part of its SME Benchmarking Tool website can provide information regarding acceptable financial ratios in various industries.

Question 32

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 33

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 34

Financial ratios are open to wide interpretation and should be relied on only to get a general perspective of the relative financial health of the business.

Question 35

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