Question 1

Asset valuation is typically the highest business valuation number that one calculates, unless the business is asset-intensive.

Accepted Answer

Asset valuation often provides a lower estimate of a business's value compared to other methods like income or market approaches, except for asset-intensive businesses where it might be higher due to the significant value of their assets.

Question 2

Attempting a turnaround is the best effort to reverse the decline of a business.

Accepted Answer

A turnaround strategy involves analyzing and identifying the reasons for a business's decline and implementing changes to reverse it. It is the best effort to revive a struggling business and make it successful again.

Question 3

Estimating cash flows 10 years into the future and subtracting a salvage value for a firm is a good ballpark floor valuation for a business.

Accepted Answer

Estimating cash flows 10 years into the future and subtracting a salvage value may be one method of valuation, but it is not necessarily a good "ballpark floor" valuation for all businesses. Valuation methods depend on the specific characteristics and circumstances of the business being valued. Additionally, other factors such as inflation, market volatility, and changes in industry trends can greatly affect the accuracy of projections made 10 years into the future.

Question 4

A business is an investment of both time and money.

Accepted Answer

The answer of A business is an investment of both...

Question 5

The true value of a business is the amount of money that a willing seller and buyer agree upon.

Accepted Answer

This is the basic definition of the market value of a business. The market value is determined by the agreement reached between the buyer and seller, which represents the fair price at which the business can be sold.

Question 6

Every small business owner will eventually need or want to exit his or her business.

Accepted Answer

Eventually, many small business owners will need to exit their business for a variety of reasons such as retirement, health issues, or a desire to move on to a new venture. It is important for business owners to have a plan in place for this transition, whether it be selling the business or passing it on to a family member or employee.

Question 7

When a small business is declining, the first step is to retrench.

Accepted Answer

Retrenchment is a strategy used to reduce costs and improve efficiency in a declining business.

Question 8

Harvesting encompasses more than just selling and leaving a business.

Accepted Answer

Harvesting can involve a variety of strategies, including selling the business, passing it on to family members, or transitioning to a different role within the company.

Question 9

It should be clear that a single universal method of valuation is needed when considering the purchase of a private company.

Accepted Answer

There is no single universal method of valuation that is applicable in all cases when considering the purchase of a private company. The valuation method used will depend on various factors such as the industry, size of the company, market conditions, future growth potential, and the buyer's investment objectives. Different methods like discounted cash flow, comparable company analysis, and precedent transactions analysis can be used to determine a fair value.

Question 10

Strategic solutions in a failing company rely on exiting those poor strategic choices that have been made over the years.

Accepted Answer

Exiting poor strategic choices is necessary in order to turn around a failing company and make more effective decisions going forward.

Question 11

Public companies have an established market capitalization, which is the value of a business as it exists at the present time.

Accepted Answer

Public companies do have an established market capitalization, which is the value of the business at the present time. This value changes depending on a variety of factors such as stock prices, number of shares outstanding, and investor demand.

Question 12

A small business person can effectively operate an existing company and pursue new opportunities at the same time.

Accepted Answer

The answer of A small business person can effectively operate...

Question 13

When a small business owner is no longer interested in the company, it is time for an exit strategy.

Accepted Answer

When a small business owner is no longer interested in the company, it is advisable to have an exit strategy in place to sell or transfer the business to another party.

Question 14

Most entrepreneurial businesses run lax operations where every individual has general functions and there is plenty of slack available for cross-training.

Accepted Answer

Entrepreneurial businesses often run lean operations where individuals have specific roles and responsibilities in order to maximize efficiency and productivity. Cross-training may still occur, but there is less slack available due to limited resources.

Question 15

If a business is performing poorly, there is virtually no goodwill value.

Accepted Answer

Goodwill value is based on the reputation and positive perception of a business in the market. If a business is performing poorly, its reputation and perception among customers and investors are likely to be negative, leading to a decrease or absence of goodwill value.

Question 16

A new business has creative company perquisites for the owners to minimize the tax owed by the organization.

Accepted Answer

It is legal for a business to provide creative company perquisites (also known as perks or benefits) to the owners that can help reduce the amount of tax owed by the organization. These perks can include things like health insurance, retirement contributions, or business travel expenses. It is important to note that while these perks are legal, they must be not only reasonable and necessary but also documented correctly in order to comply with tax regulations.

Question 17

An IPO (initial public offering)is the initial listing of a firm as a private entity in the public equities market.

Accepted Answer

An IPO is the first time a company sells stock to the public, transitioning from a private to a public company.

Question 18

When a business's performance has declined, the owner may decide to either close it or reverse the decline and conduct a "turnaround."

Accepted Answer

This statement is true. When a business's performance declines, the owner may choose to either close the business or attempt to turn it around and improve its performance.

Question 19

It does not take much effort to turn around an entrepreneurial business successfully once it starts into a decline.

Accepted Answer

It takes a lot of effort, hard work, and strategic planning to turn around a business that is in decline. It is not a simple or easy process.

Question 20

Developing an exit plan makes the family and investors uneasy about the new business.

Accepted Answer

Developing an exit plan is often seen as a sign of good business planning. It shows investors and family that there is a clear strategy in place for handling various future scenarios, including both success and challenges, which can actually increase their confidence in the business.

Quiz 13: Exit-Harvest-Turnaround