CEPA Exam Prep 2025: Questions and Answers with Rationales, Exams of Finance

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CEPA (CERTIFIED EXIT PLANNING ADVISOR) EXAM PREP 2025 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES

1. What is the calculation for Recasted EBITDA?: Addbacks + EBITDA = Recast- ed EBITDA
2. What does EBITDA stand for?: Earnings Before Interest, Taxes, Depreciation, & Amortization
3. What are the three gaps within the Value Acceleration Methodology?: Wealth Gap, Value Gap, & Profit Gap
4. What are the Five Stages of Value Maturity in order?: Identify, Protect, Build, Harvest, Manage
5. In the Five Stages of Value Maturity, what occurs in the "Identify" stage?- : Identify and asses the business value. Understand how ready and attractive the business is. What is the current value? What is it's potential value? What are the gaps?
6. What are considered the "Value Creation" stages within the Five Stages of Value Maturity?: Protect Value and Build Value
7. In the Five Stages of Value Maturity, what occurs in the "Protect" stage?- : Protect what you have because "build" means more risk. Make sure the right systems are in place: the right financial advisor, right financial plan, documented standard operating procedures within the business, insurance, etc. Protect always comes before Build. Non-strategic actions are ALWAYS before strategic actions.
8. In the Five Stages of Value Maturity, what occurs in the "Build" stage?: This is made up of strategic actions including culture building, communication building, personnel changes, new products/improvements, etc.
9. In the Five Stages of Value Maturity, what occurs in the "Harvest" stage?: - This is when the owner exits the company and harvests its value
10. Simply put, what is exit planning?: Good Business strategy
11. What are the Four intangible Capitals or "Four C's"?: Human Capital, Struc- tural Capital, Customer Capital, & Social Capital
12. How much of a business' value (in percentage) is trapped inside the four intangible capitals or "Four C's"?: 80%
13. What is Human Capital?: It's the people in the business. Employee tenure, experience / talent level, management team succession plan, management team

16. What is Social Capital?: Culture within & outside the company. How people relate outside of the company. This is developed over time after all other intangible capitals are established/improved.
17. What are the three gates (in order) of the Value Acceleration Methodolo- gy?: Discover, Prepare, & Decide
18. What are the Three Legs of the Stool?: Business, Financial, & Personal
19. What is the Wealth Gap?: Understanding the owner's wealth goal (how much money they'll need to fulfill personal needs) and the current value of their assets (not including their business). The gap or difference between these two is usually filled by the business' value.
20. What is the Value Gap?: The difference between the owner's current business value and the Best-In-Class business value.
21. What is the Profit Gap?: The difference between the owner's current business profit (or recasted EBITDA) and the Best-In-Class business profit (or recasted EBITDA)
22. The two concurrent paths are in which gate within the Value Acceleration Methodology?: The Prepare Gate
23. What are the two concurrent paths within the Prepare Gate?: The risk mitigation (De-risk) / business improvement path AND The personal/financial ("Vision") path
24. What is the ONE goal of the Value Acceleration Methodology?: To drive value across all three legs of the stool (business, financial & personal)
25. How much of an owner's wealth (in percentage) is locked in their busi- ness?: 80 - 90%
26. What's the difference between a Lifestyle Business and Value Creator Business?: Lifestyle business = good income; not transferrable Value creator business = good income; transferable (owners treat their business like an asset)

27. Most owners don't address what kind of planning?: personal planning
28. What kind of planning could be the key to making an exit successful?: per- sonal planning
29. What is the number one reason deals fail?: seller's cold feet
30. The Value Maturity Index teaches owner's the concept that they can have and .: value AND income (as long as the owner focuses on VALUE first)

Weak - haven't thought about it

2. Have thought about it but they don't have anything
3. Below average
4. Above average
5. Best-In-Class
6. Perfect; can't get better; this is rare Most people fall in the 2, 3, 4 or 5 range. 1's and 6's are rare.

43. What are the Range of Values for the Common Sense Scoring Scale?: 50% or less = weak; high risk 58% = average 67% = above average; low risk 72% or higher = best-in-class
44. What is the definition of Value Acceleration?: A proven process that focuses on value growth and aligning business, personal and financial goals.
45. As it relates to retirement planning, what are the three main business owner issues?: 1) How much do I need?

2. What rate of return (ROR) do I need on my investments?
3. Addresses stock market volatility

46. What are the main drivers of financial planning as it fits in with exit planning?: - age at retirement

• spending in retirement
• current assets
• savings until retirement

47. What are the topics of typical estate planning conversations?: - preserving the deceased spouse's coupon

• disability trustee planning
• probate avoidance
• creditor protection
• predator protection
• bloodline protection

48. How does a workshop differ from a meeting?: - Workshops are more collab- orative; time-restrained

3. Identifies your Profit Gap
4. Identifies your Value Gap
5. Identifies ACTIONS you can take to protect, build, and harvest value

52. What is the definition of the following Standard of Value? Investment Value: The value to a particular investor based on individual investment requirements & expectations.
53. How is Discounted Cash Flow (DCF) predicted?: Discounted Cash Flow is predicted on a specific future look at economic benefits.
54. What leg of the stool is most important?: All three legs of the stool are EQUALLY important.
55. What is the formula for Value Gap?: Best In Class Value - Current Value
56. The biggest obstacle to plans getting done is .: poor planning
57. What is the "Gap Nobody Knows"?: "Execution is the great unaddressed issue in the business world today. Its absence is the single biggest obstacle to success"

• Larry Bossidy & Ram Charon

58. What are the three success areas a business owner's goals and objectives should focus on?: Personal, Financial, & Business
59. What are the four cornerstones of Relentless Execution?: 1) Vision

2. Alignment
3. Accountability
4. Rhythm

60. What are SMART goals?: Specific, Measurable, Aspirational, Realistic, Time-based
61. What is the definition of Relentless Execution?: - A specific set of behaviors & techniques that companies need to master in order to have a competitive advan-

tage.

• A systematic process of rigorously discussing the how's and what's, questioning, tenaciously following through, and ensuring accountability.
• A core element of an organization's culture.
• A relentless pursuit of reality, coupled with processes for constant improvement.

62. According to the EPI State of Readiness Survey, two-thirds of owners do not know .: all their exit options

70. What are the pros of an Intergenerational Transfer?: - Business legacy preservation

• planned
• lower cost
• more control
• less disruption
• higher buyer/seller motivation

71. What is the definition of a Sale to a Third Party?: Owner sells the business to a strategic buyer, financial buyer, or private equity group through a negotiated sale, controlled auction, or unsolicited offer.
72. What is the definition of a Recapitalization?: Finding ways to "fund the company's balance sheet". Essentially brings in a lender or equity investor to act as a partner in the business. Can sell minority or majority position.
73. What is the Private Equity Group structure?: 1) Limited partners invest in a Private Equity Fund.

2. The PE Fund makes an investment into a target company via cash or debt
3. The investment purchases price proceeds through selling shareholders or existing lenders/bondholders

74. What happens as more money comes into the Private Equity space?: The more money that comes into PE, the more competition, and the more competition, the less the returns
75. How long does a deal take on average?: 12 months
76. In a high tax environment, ESOPs allow you to do what?: Defer cap gains tax liability
77. What is an ESOP?: ESOPs are ERISA retirement (qualified) plans
78. What is the basic structure of an ESOP look like?: A bank lends cash to your company, your company gives that cash to an ESOP trust, and the ESOP trust gives the cash to the seller. And the seller gives stock to the ESOP trust, the ESOP trust gives your company an inside loan, and your company gives an outside loan with the bank.
79. What are the disadvantages of an ESOP?: - ESOP can only pay Fair Market Value (lower price)

• Owners may not get 100% "cash out" at closing
• Must prepare for the current Regulatory Environment (DOL)
• Repurchase Obligation post-formation must be planned for by the company

80. You can't do an ESOP without what?: A strong management team

86. What makes a team effective?: Trust, conflict, commitment, and results
87. What trusted advisors are a part of the core (discover gate) team?: CPA Attorney Financial Advisor Insurance Advisor Value Advisor
88. What is the Organizing Principle for any exit planning team?: To align the three legs of the stool: business, personal, and financial (this is the concept of "Mastering Planning") Master Planning is the Organizing Principle The Organizing Principle is the Three-Legged Stool And the Three-Legged Stool is business, personal, and financial
89. Every business trades within a .: Range of Value (ROV). Also known as Range of Multiple (ROM). There is a range of multiple for every industry. A typical range is as low as 3 and all the way up to 10x recasted EBITDA.
90. Your Attractiveness and Readiness Score determines what?: Where the company places on the Range of Value. The high/lower the score, the higher/lower the multiple.
91. What is the Common Sense Scoring Scale used for?: To analyze a compa- ny's attractiveness & readiness
92. Business readiness is determined by what?: Intangibles. The Four C's (Hu- man, Structural, Customer, and Social Capital) You will know if each of these are strong/weak by using the Scoring Scale.
93. Why is the 1 - 6 range (no decimals) of the Common Sense Scoring Scale important?: There is no average or middle ground; it forces the owner to grade above or below average
94. How is personal readiness/preparedness rated?: Using the Common Sense Scoring Scale.

Ask these questions to give yourself a better idea of the owner's score. Is there a personal and estate plan? Is there a personal vision/purpose? Does the owner know their wealth goal?

104. What are the pros and cons of Intergenerational Transfer (a.k.a. family succession or family business transfer)?: Pros:

• business legacy preservation
• planned
• lower cost
• more control
• less disruption
• higher buyer / seller motivation

Cons:

• family dynamics
• lack of funds/illiquid buyers
• lower sale price
• key employee flight risk
• tradition may outstrip good strategy
• path of least resistance - but not always a path to growth or success

105. What are the pros and cons of Sales to Employees (a.k.a. ESOPS)?: Pros:

• business stays in the "family"
• shares purchased with pre-tax dollars
• taxable gain on ESOP shares may be deferred
• ESOP is an employee benefit
• often causes employees to think more like owners Cons:
• may be more complicated & expensive than other options
• requires securities registration exemption
• company compelled to buy-back shares from departing employees
• generally suited for a gradual exit

106. What are the pros and cons of a Sale to a Third Party?: Pros:

• higher price (highest of the options)
• more cash up front
• walk away faster
• stability of deal terms
• business refresh (growth, new energy)