Absentee Run Business

A business where the owner does not actively manage daily operations, which are instead handled by a manager or team of managers. The owner monitors the business from afar. Discover more about absentee run businesses.

Accounts Payable (A/P)

Money the business owes to suppliers, vendors, or creditors for goods or services received.

Accounts Receivable (A/R)

Money owed to a business by customers for goods or services provided but not yet paid for.

Acquisition

The process of purchasing one business by another individual or company to gain ownership and control.

Add-Back

Expenses excluded from earnings calculations to present adjusted profit, such as personal, discretionary, or non-recurring costs. Explore the concept of add-backs.

Amortization

The gradual reduction of an intangible asset's value or loan balance over time through scheduled payments.

Appraisal

A formal assessment of a business's value conducted by a professional appraiser, focusing particularly on tangible assets and their current market worth. Discover how business appraisals affect transaction values.

Appraised Value

The estimated monetary value of a business or asset, assessed by a professional appraiser using market trends and asset analysis. Understand the difference between appraised and market value.

Asking Price

The initial amount a seller requests for their business, typically based on valuation methods, market conditions, and the seller's financial requirements. It serves as the starting point for negotiations between the buyer and seller. Learn more about setting a realistic asking price for your business.

Assets

Items of value owned by a business, such as cash, inventory, real estate, or equipment, classified as current (short-term) and non-current (long-term).

Asset Sale

A transaction where specific business assets and liabilities are sold to a buyer, who takes ownership of the operational assets. Dive deeper into what's included in an asset sale.

Balance Sheet

A financial statement summarizing a business's assets, liabilities, and equity at a specific point in time.

Benchmarking

The practice of comparing a business's performance metrics against industry standards or competitors. Get insights on how to benchmark a business.

Book Value

The net value of a business, calculated by subtracting liabilities from total assets as listed on the balance sheet.

Business Broker

A professional who facilitates the buying and selling of businesses, often small businesses valued under $1 million. Discover what business brokers actually do.

Business Valuation

The process of determining the monetary value of a business, often for sale, investment, or legal purposes. Find out how to accurately value a business.

Buy-Sell Agreement

A contract among business partners that outlines terms for the transfer of ownership when one owner sells, dies, or becomes incapacitated. Explore the importance of buy-sell agreements.

Buyer Interview

A meeting during the business acquisition process where potential buyers discuss their background, qualifications, financing capabilities, and strategic plans with the seller.  Explore strategies for successful buyer interviews.

Capital Expenditures (CapEx)

Funds used to acquire, upgrade, or maintain long-term physical assets like property or equipment.

Capital Gains

The profit made from selling an asset for an amount higher than its purchase price, such as real estate or a business.

Capital Intensity

The amount of capital investment required to generate a certain level of revenue or output.

Cash Flow

The net inflow and outflow of cash in a business, used to measure operational health and liquidity. Understand why cash flow matters in business.

CIM (Confidential Information Memorandum)

A document detailing a business's operations, financials, and value, shared with potential buyers under confidentiality. Get tips on creating an effective selling memorandum.

Closing

The finalization of a business sale where all legal documents are signed, funds transferred, and ownership is handed over to the buyer. See what happens during a business sale closing.

Co-Broker

A business broker who works with another broker to facilitate a business sale, typically with one representing the buyer and the other representing the seller. The commission is usually split between the co-brokers according to their agreement.

COGS (Cost of Goods Sold)

The direct cost of producing goods sold by a business, such as materials and labor. Discover how COGS impacts business valuation.

Collateral

Assets promised as security for a loan or financial agreement.

Commercial Real Estate Broker

A licensed professional who specializes in buying, selling, and leasing commercial properties. 

Comps

A valuation method comparing the business to similar companies to estimate its value. Explore how to use comps for business valuation.

Confidentiality

Maintaining confidentiality helps to protect a business's value, sensitive data, and employee morale during a business sale.  Find strategies for maintaining business sale confidentiality.

Contingencies

Conditions outlined in a business sale agreement that must be met before the transaction is finalized.

Customer Lifetime Value (CLV)

An estimate of the total revenue a customer generates for a business over time. Learn why customer value matters in business valuation.

DBA (Doing Business As)

A legal designation allowing a business to operate under a name different from its registered legal name. Discover when and why businesses use a DBA.

Debt Risk

Also know as credit risk, this represents the possibility of loss due to a borrower defaulting on a loan.

Debt Service Coverage Ratio (DSCR)

A metric measuring a business's ability to cover its debt payments using its net operating income. Understand how DSCR affects business financing.

Depreciation

The loss of value of tangible assets like equipment or vehicles over time.

Digital Assets

Intangible digital resources such as domain names, websites, digital content, and social media accounts owned by a business.

Discounted Cash Flow (DCF)

A valuation method estimating the present value of a business based on future cash flow projections. Explore how DCF analysis works in business valuation.

Discretionary Owner Earnings

Also known as SDE (Seller's Discretionary Earnings) and Discretionary Earnings (DE), the total pre-tax, pre-interest earnings, adjusted to include the owner's benefits and exclude non-recurring expenses. Find out why discretionary earnings matter when selling a business.

Due Diligence

The investigation process a buyer undertakes to verify a business's financial records, legal compliance, operations, and assets before completing the acquisition of a business. This examination helps identify potential risks and validates the information provided by the seller. Explore essential due diligence checklists for business buyers.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, used to measure a company's operational profitability. Understand how EBITDA drives business valuation.

Earnings

Profits remaining after subtracting all operating expenses from total revenue.

Earnest Money

A deposit made by a buyer as a show of good faith during the business-buying process. Discover the difference between escrow and earnest money.

Earnout

A deferred payment agreement where the seller receives additional compensation if specific financial targets are met. Learn how earnouts can benefit both buyers and sellers.

Enterprise Value

The total value of a company calculated as the market capitalization plus debt, minority interest, and preferred shares, minus cash and cash equivalents. It represents the theoretical takeover price if the business were to be acquired.

Equity

Ownership stake in a business, often represented as shares or membership interests.

Escrow

A legal arrangement where an impartial third party holds funds or assets during the completion of a transaction.

ESOP (Employee Stock Ownership Plan)

A program allowing employees to share in company ownership through stock investments. Explore how ESOPs work as an exit strategy.

ETA (Entrepreneurship Through Acquisition)

A process where individuals or groups buy and manage existing businesses instead of starting from scratch. Find out why entrepreneurs are choosing acquisition over startups.

Exit Plan

A strategic roadmap outlining how a business owner intends to transition out of their business, whether through sale, succession, or liquidation. A well-developed exit plan addresses timing, valuation targets, tax considerations, and transition management. Discover how to develop an effective exit strategy.

Fair Market Value (FMV)

The price an asset would sell for between a willing buyer and seller in an open market.

Family Succession

The transfer of business ownership and leadership from one generation to the next within a family. Explore best practices for family business succession.

Financial Statement

A report summarizing a business's financial activities, including balance sheets, income statements, and cash flow statements.

FF&E (Furniture, Fixtures, and Equipment)

Tangible business assets like desks, shelving, machinery, and computers, not including inventory or property. Understand how FF&E is valued in business sales.

Franchise

A business model where the owner (franchisor) licenses their brand and operations to franchisees for a fee. Explore the pros and cons of the franchise business model.

FSBO (For Sale By Owner)

A business sale managed directly by the owner without the involvement of intermediaries like brokers. Discover the challenges and benefits of selling your business without a broker.

Going Concern Value

The value of a business based on its ability to generate future income while continuing normal operations. This valuation approach assumes the business will remain operational rather than being liquidated, incorporating both tangible assets and intangible elements like customer relationships and goodwill.

Goodwill

An intangible asset representing the premium paid over a business's fair market value for its reputation, brand, or customer base.

Gross Profit

The remaining profit after deducting the costs associated with producing and selling its products or services. It's also known as sales profit or gross income.

Gross Revenue

See gross revenue.

Growth Rate

The percentage increase or decrease in a business's revenue, profit, or customer base over time. See how growth rate impacts business valuation.

Holding Company

A business entity that exists primarily to own and control other companies or assets.

Home Based Business

A business that operates primarily from the owner's residence rather than a commercial location. 

Income

The revenue a business generates from its operations, minus costs and expenses.

Income Approach

A valuation method based on a business's projected income or cash flow.

Income Statement

A financial statement detailing a business's revenue, costs, and net profit over a particular period.

Intangible Assets

Non-physical assets like brand names, patents, and trademarks that contribute to a business's value.

Intellectual Property

Intangible creations that have commercial value and are legally protected through patents, trademarks, copyrights, or trade secrets. Discover how to value intellectual property in business sales.

IOI (Indication of Interest)

A preliminary, non-binding offer from a buyer outlining their intent and proposed terms to purchase a business. Understand the difference between IOIs and LOIs.

Interest Rates

The cost of borrowing money, expressed as a percentage of the loan amount.

Inventory

Goods and materials a business holds for sale or use in production. It is considered a current asset and plays a key role in determining a business's operational efficiency and profitability. Explore inventory valuation methods in business sales.

Key Person

An individual whose knowledge, skills, relationships, or expertise are critical to a business's operations or success. Learn how to manage key person risk and reduce owner dependency in business sales.

Leasehold Improvement

Modifications or enhancements made to a leased property by the tenant to suit their business needs, such as installing fixtures or partitions. Discover how leasehold improvements affect business value.

Lease Assignment

A transfer of lease rights and obligations from the current tenant (seller) to a new tenant (buyer), often requiring landlord approval. Compare lease assignment and sublease options.

Leverage

The use of borrowed funds to finance the purchase of a business, increasing potential returns but also financial risk. See how leverage impacts business acquisition strategies.

Liabilities

Financial obligations or debts a business owes to creditors, suppliers, or lenders.

Lien

A legal claim on a business's assets used as collateral until a debt is fully repaid.

Listing Agreement

A contract between a business seller and a broker defining the terms of the broker's services to market and facilitate the sale. Understand key terms in business broker contracts.

Liquidation Value

The estimated amount that would be realized from selling a business's assets individually rather than as an operational entity. 

Lower Middle Market

Businesses with annual revenues typically between $5 million and $50 million. These companies are larger than small businesses but smaller than traditional middle-market firms, often experiencing unique challenges and opportunities in the acquisition marketplace.

Merger

A business combination where two companies join to form a single entity, typically through an exchange of shares. Unlike acquisitions, mergers often involve companies of similar size and result in a shared ownership structure for the consolidated business.

M&A Advisor

A professional who provides guidance and expertise in mergers and acquisitions, often for businesses valued above $1 million.

M&A (Mergers & Acquisitions)

Merging two businesses into one or acquiring a company to expand, streamline, or scale operations. Understand the key differences between mergers and acquisitions.

Management Buyout

A transaction where a business's current management team purchases the company from its owner(s), often with financing assistance. Explore how management buyouts work as an exit strategy.

Market Approach

A business valuation method that uses comparable sales data of similar businesses in the market to estimate value.

Market Value

The estimated price a business would fetch in the open market, influenced by demand, competition, and economic factors.

Mezzanine Financing

A hybrid financing option blending elements of debt and equity, often used in acquisitions or growth projects.

Multiple

A valuation method that applies a multiplier to a business metric such as revenue, EBITDA, or SDE to determine value. Industry standards and comparable sales influence which multiples are used, with higher multiples typically associated with larger, more established businesses with growth potential. Learn how to apply appropriate multiples in business valuation.

Net Income

The profit a business earns after deducting all expenses, taxes, and costs from its total revenue.

Non-Compete Agreement

A legal promise by the seller not to start or join a competing business in the same market for a specified time. Discover why non-compete agreements are used in business sales.

NDA (Non-Disclosure Agreement)

A legally binding contract that requires parties to maintain confidentiality of sensitive information shared during business discussions. In business sales, NDAs are typically signed before detailed information about the business is disclosed to potential buyers. Understand the importance of NDAs in protecting business sale confidentiality.

Normalized Financial Statement

Financial records adjusted to reflect the true economic condition of a business by removing unusual, non-recurring, or owner-specific items. This adjustment process provides a clearer picture of the business's earning capacity for valuation purposes. Learn how to clean up financial statements for accurate business valuation.

Operating Costs

The ongoing, daily expenses necessary to operate and run a business.

Owner Benefit

The amount in the total dollars that an owner can expect to extract or have available from a business based upon what the business has generated in the past. See Seller's Discretionary Earnings..

Passive Income

Earnings that require little to no ongoing effort, such as rental income or revenue from automated operations. Explore businesses that can generate passive income.

Personal Guarantee

A legal commitment where an individual agrees to repay a loan or debt if the business cannot. Understand the risks of personal guarantees in business loans.

P&L Statement (Profit and Loss Statement)

A summary of a business's financial performance, showing revenues, expenses, and net profit over a period.

Private Equity

Investment funds that buy ownership stakes in businesses with the aim of improving value and achieving high returns. Discover what to expect when selling to private equity.

Profitability

The degree to which a business earns a profit. Different from profit, the amount of money a company makes, in that profitability determines whether a business is successful.

Profitability Ratio

Financial metrics that measure a business's ability to turn a profit relative to its revenue, operating costs, balance sheet assets, and any shareholder equity.

Profit Before Tax (PBT)

A business's earnings after all operating expenses, interest, and other costs have been deducted from revenue, but before income taxes are paid.

Pro Forma

Financial statements projecting a business's future revenues, expenses, and profits based on assumptions about growth or changes.

Promissory Note

A written agreement in which one party promises to repay a specific sum to another party at an agreed-upon time.

Purchase Agreement

A legally binding contract outlining all terms and conditions of a business sale, including price and asset details. Get tips for preparing an effective purchase agreement.

Purchase Price Allocation

The process of assigning portions of the purchase price to various assets like goodwill, FF&E, and inventory for tax purposes. See how purchase price allocation affects taxes in business sales.

Quality of Earnings

An evaluation of a business's earnings to ensure they are sustainable, consistent, and free of one-time or irregular factors. Find out why quality of earnings reports matter to buyers.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost. In business acquisitions, buyers analyze expected rate of return to evaluate the investment's attractiveness compared to alternative opportunities.

Real Estate

Land and any permanent structures or improvements attached to it, including buildings, fixtures, and equipment that cannot be removed without damage to the property. Learn more about real estate considerations when selling a business.

Recasting

Adjusting financial statements to reflect the true earning potential of a business, often used during valuation. Discover how to properly recast financial statements.

Recurring Revenue

Stable and predictable income a business consistently earns, often from subscription services or repeat customers. See why recurring revenue increases business value.

Rent to Revenue Ratio

A metric showing the percentage of revenue spent on rent, providing insight into cost efficiency and profitability. Understand what makes a good rent to revenue ratio.

Representations and Warranties

Legal terms in a business transaction agreement that outline statements about the business's current status (representations) and guarantee the truth of those statements (warranties). Explore how reps and warranties protect buyers and sellers.

Return on Investment (ROI)

A measure of profitability that compares the return from an investment to its cost. Learn how to calculate ROI for business acquisitions.

Revenue

The total income generated from the sale of goods or services before expenses are deducted.

Revenue Multiple

A valuation method using a multiplier of a business's annual revenue to estimate its market value. Find out when to use revenue multiples for business valuation.

ROBS (Rollover as Business Startup)

A financing strategy allowing entrepreneurs to use retirement funds to start or buy a business without early withdrawal penalties. Explore how to use retirement funds to purchase a business.

Rollup

A strategy where multiple smaller companies in the same industry are acquired and consolidated into a larger entity. This approach aims to create economies of scale, eliminate redundancies, increase market share, and potentially command higher valuation multiples.

Rule of Thumb

Simplified valuation formulas based on industry benchmarks, used as a starting point in business appraisals.

SBA Loan

A loan partially guaranteed by the Small Business Administration, designed to help small businesses secure funding. Common SBA loan programs include:

• 7(a) Loan Program: A versatile loan program for business acquisitions, expansions, or working capital. Discover how to qualify for an SBA 7(a) loan.
• 504 Loan Program: A loan program providing long-term financing for major fixed assets like real estate or equipment. See how SBA 504 loans work for real estate acquisitions.

Get the essentials of SBA loans for business acquisitions.

Search Fund

A model where entrepreneurs raise funds to find, acquire, and operate an existing small business. Learn how search funds transform entrepreneurs into CEOs.

Seller Financing

A sale structure where the seller agrees to finance part of the transaction, allowing the buyer to pay over time. Understand the benefits of seller financing for both parties.

Seller Holdback

A portion of the purchase price withheld in escrow to ensure the seller fulfills agreed-upon conditions. Find out when and why to use seller holdbacks.

Selling Memorandum

See CIM (Confidential Information Memorandum).

SDE (Seller's Discretionary Earnings)

A valuation metric that shows total earnings available to the owner, including salary, benefits, and non-recurring expenses. Explore how SDE differs from EBITDA in small business valuation.

Solvency

The ability of a business to meet its long-term debts and financial obligations.

SOPs (Standard Operating Procedures)

Written instructions detailing recurring processes to maintain consistent business operations. Discover why SOPs increase business value and transferability.

Stock Purchase

A transaction where the buyer acquires ownership by purchasing the seller's shares in the business.

Strategic Buyer

A purchaser seeking to add value by integrating the acquired business into existing operations. Learn why strategic buyers often pay premium prices.

Succession Planning

A strategy for transitioning ownership and management of a business to a successor. Explore effective succession planning strategies.

Supplier Concentration

The degree to which a business depends on a small number of suppliers, indicating potential risks to operations. Understand how supplier concentration affects business value.

Tangible Assets

Physical items of value owned by a business, such as equipment, inventory, and real estate.

Tax Basis

The value assigned to an asset for tax purposes, influencing depreciation and capital gains calculations.

Term Sheet

A non-binding document summarizing the terms of a potential business agreement before formal contracts are created.

Training Agreement

An arrangement where the seller agrees to train the buyer to ensure a smooth operational transition. Learn more about buyer training after the sale.

Transition Period

The timeframe during which the seller assists the buyer with taking over and running the business.

Turnkey

A business ready for immediate operation without the need for significant additional work or investment.

Valuation Methods

Approaches to determining a business's value, such as asset-based, income-based, or market-based models.

Working Capital

The financial resources available for the daily operations of a business, calculated as current assets minus current liabilities. Discover why working capital matters in business acquisitions.