ENTR Chapter 6
A key factor in business valuation is review of what other companies in the industry have sold for.
True
A major advantage of purchasing an existing business is that the customers are familiar with the location.
True
An income statement method business valuation focuses more on cash flow than asset value
True
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.
True
Brokers take classes and pass examinations to become certified business intermediaries.
True
Buying an existing business is becoming a more popular way to own a small business.
True
Due diligence is the process of fact finding to determine the total condition of a business being considered for purchase.
True
Family businesses make up 80 percent of all businesses in the United States and comprise nearly 50 percent of the Nation's GNP
True
Goodwill is the term used to describe the difference between the purchase price of a company and the net value of the tangible assets.
True
Having an established supplier relationship is an advantage of buying an existing business.
True
If an existing business is purchased, the buyer may be potentially liable for past business contracts.
True
Industry averages exist comparing expenses to sales for every size and type of business.
True
Inventory is an example of a tangible asset.
True
It is important not to let emotions cloud judgment when making business purchase decisions.
True
Real estate brokers may be a good source of potential businesses for sale since their listings may include business real estate.
True
The amount paid for goodwill should be small enough to be recovered with new profits in a reasonably short time period.
True
When the owner of a business decides to sell, the reasons the owner tells prospective buyers may be somewhat different than the actual reasons.
True
Word-of-mouth information through friends and family may turn up business opportunities that do not appear through formal channels.
True
About half of all family businesses survive through the second generation.
False
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.
False
Discounted cash-flow analysis consists of projecting future cash flows after debts are subtracted and before taxes are paid
False
Existing businesses do not have to be scrutinized carefully to determine whether they are a worthwhile investment of time and money.
False
Goodwill is an example of a tangible asset.
False
Tangible assets are the product of a firm's past earnings and the basis on which future earnings are projected.
False
The fact that a business's image is difficult to change is a distinct advantage when taking over an existing business.
False
The value of a business's intangible assets is easy to determine.
False
There are not as many factors that could contribute to the sale of a business as there are reasons for business liquidations
False
When a family member enters the family business, he or she is immediately accepted by nonfamily employees due to his/her position.
False
When analyzing the financial statements of the business, it is important to rely most heavily on the most recent year of operation.
False
When discussing the purchase of an existing business, it is not necessary to get verbal understandings in writing from the seller.
False
When purchasing a business, the people working there can be disregarded since they will probably not stick around after the business is in new hands
False
When running a family business, there are four overlapping perspectives on its operations: family, management, ownership, and sales.
False
You should never ask the owners of a business where you are a customer whether they are interested in selling their business
False
