MULTIPLE CHOICE QUESTIONS
1. What does “ROT” stand for in the context of business valuation? A) Rate Of Transfer B) Rules Of Thumb C) Return On Transaction D) Reliability Of Terms
2. According to the post, what is the primary problem with Rules of Thumb? A) They are too conservative and undervalue all businesses B) They don’t consider any specifics of the business that may add or detract from value C) They are only used by accountants, not business owners D) They change too frequently to be reliable
3. In the $26 million public company spinoff example, what was the actual negotiated price before adjustments? A) $10 million B) $16 million C) $26 million D) $36 million
4. What was Marcus Rivera’s initial revenue multiple expectation for DataSync Solutions? A) 4-6x revenue B) 6-8x revenue C) 8-12x revenue D) 12-15x revenue
5. What was Marcus’s actual annual revenue retention rate when he first sought to sell? A) 40% B) 60% C) 85% D) 95%
6. How many customers did Marcus have initially, and what percentage of revenue came from his top 8 clients? A) 45 customers, 35% from top 8 B) 67 customers, 55% from top 8 C) 120 customers, 25% from top 8 D) 340 customers, 15% from top 8
7. What multiple did comparable companies TechFlow and CloudMetrics achieve? A) 4-6x revenue B) 6-8x revenue C) 10-12x revenue D) 15-20x revenue
8. After Marcus’s 24-month transformation, what was his net revenue retention rate? A) 60% B) 82% C) 92% D) 97%
9. What was Marcus’s final sale price after the transformation? A) $6.2 million B) $24 million C) $44 million D) $64 million
10. What was Marcus’s return on investment for the 24-month transformation (investment vs. value created)? A) 15x ROI ($800K investment, $12M created) B) 28x ROI ($1.2M investment, $33.6M created) C) 46x ROI ($800K investment, $36.9M created) D) 52x ROI ($600K investment, $31.2M created)
EXPLANATION QUESTIONS
Answer each question in 3-5 sentences, demonstrating your understanding of the concepts.
1. Explain the critical difference between a multiplier that was calculated from due diligence and a “rule of thumb.” Why does this distinction matter for business valuation?
2. Why are comparable transactions dangerous for business valuation even when the companies appear similar? What critical information is typically missing?
3. The post states: “Premium purchasers are not buying your widgets or digits; they are buying a corporate business system that converts revenue to income.” Explain what this means and why it matters.
4. What were the three specific characteristics that companies selling for 10-12x revenue possessed that Marcus’s DataSync Solutions initially lacked?
5. Explain why Marcus’s 60% annual retention rate was catastrophic for his valuation, while the comparable companies had 90-95%+ net revenue retention.
6. How did Marcus address his customer concentration risk during his 24-month transformation? What specific metrics changed?
7. The case study shows Marcus spent $800K over 24 months but created $36.9M in additional value. Walk through the math that demonstrates this return on investment.
8. Why did the $26 million public company spinoff example demonstrate that comparable transaction data can be misleading? What were the hidden terms?
9. Explain why “being different” as a business doesn’t automatically create value. What must happen for differences to become valuable?
10. The post emphasizes that business owners should profile potential purchasers as carefully as they profile customers. Why is this critical, and what happens when owners fail to do this?
