Before purchasing an existing business, an entrepreneur should analyze both its

Question

Before purchasing an existing business, an entrepreneur should analyze both its existing and its potential customers.

True

False

5 points   

QUESTION 3

During the acquisition process, the buyer and the seller sign a ___________, which spells out the parties' final deal and represents the details of the agreement that are the result of the negotiation process.

covenant not to compete

non-disclosure document

letter of intent

purchase agreement

5 points   

QUESTION 4

Some franchisors offer ___________ to give existing franchisees the right to exclusive distribution of brand name goods or services within a particular geographic area.

territorial protection

exclusive rights

guaranteed protection

exclusivity

5 points   

QUESTION 5

Skimming is the act of taking money from sales without reporting it as income and it is an illegal and unethical practice.

True

False

5 points   

QUESTION 6

Which of the following should make a potential franchisee suspicious about a franchisor's honesty?

Claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over.

An offer of direct financing of a specific element of the franchise package.

Not providing detailed operational information until 10 days before signing the contract.

Requiring franchisees to spend a certain percentage of profits on advertising.

5 points   

QUESTION 7

Advantages to buying an existing business that you do not have with a startup include:

greater access to venture capital.

the opportunity to participate in a national advertising campaign.

inventory is in place and trade credit is established.

easy implementation of innovations and changes from past policies.

5 points   

QUESTION 8

A business buyer should build his or her own pro forma income statement from an existing firm's accounting records and compare it to the same statement provided by the owner.

True

False

5 points   

QUESTION 9

A non-disclosure document is an agreement between a business buyer and a seller that requires the buyer to maintain strict confidentiality of all records, documents, and information he receives during the parties' negotiations.

True

False

5 points   

QUESTION 10

Which of the following valuation methods does NOT consider the future income-earning potential of a business?

Balance sheet technique

Excess-earnings method

Discounted future earnings approach

Market approach

5 points   

QUESTION 11

Establishing a Baskin-Robbins franchise inside a Blimpee's franchise is an example of __________ franchising.

multi-unit

master

piggyback

diversionary

5 points   

QUESTION 12

The failure rate for franchises is below that for other types of new businesses.

True

False

5 points   

QUESTION 13

The due diligence process in analyzing and evaluating an existing business can be just as time consuming as the development of a comprehensive business plan for a startup.

True

False

5 points   

QUESTION 14

A method of valuing a business based on the value of the company's net worth is the:

balance sheet technique

adjusted balance sheet technique

earnings approach

opportunity cost technique

5 points   

QUESTION 15

Some business brokers differentiate between two types of buyers: ______________buyers see buying a business as a way to generate income and _____________ buyers view the purchase as part of a larger picture to offer a long-term advantage.

strategic; financial

financial; strategic

strategic; optimistic

financial; passive

5 points   

QUESTION 16

The ____________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.

balance sheet

capitalized earnings

adjusted balance sheet

discounted future earnings

5 points   

QUESTION 17

A company's P/E ratio is:

the price of one share of its common stock divided by its earnings per share.

its profits per share divided by its equity per share.

its profits per share divided by its excess cash flow per share.

None of the above.

5 points   

QUESTION 18

A creditor's claim against an asset is referred to as a lien.

True

False

5 points   

QUESTION 19

Which of the following is NOT a potential advantage of franchising for the franchisee?

Management training and assistance

National advertising program

Centralized buying power

Limited product line

The bigger the franchise, the more successful the franchisees will be.

True

False

covenant not to compete

non-disclosure document

letter of intent

purchase agreement

Explanation / Answer

True

Purchase Agreement

Territorial protection

True

Claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over.

Inventory is in place and trade credit is established

True

True

Market Approach

Piggyback

True

True

Balance sheet technique

Financial; Strategic

Discounted future earnings

The price of one share of its common stock divided by its earnings per share

True

Limited product line

False

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