Business buying glossary

The words that come up when you value, finance and close on a business for sale — explained in plain English, no jargon required.

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Add-Backs: Owner costs run through the business — salary, personal car, travel, one-off repairs — that a buyer adds back to normalise profit before valuing the company.
Annual Service Fee: An ongoing fee SBA charges the lender, currently 0.55% of the outstanding guaranteed balance. Lenders are not allowed to pass it on to the borrower.
Asset Sale: Buying the equipment, inventory, customer lists and other assets of a business rather than its shares. The buyer chooses which contracts and liabilities come across.

Balance Sheet: A snapshot of what a business owns and owes at a single point in time. Buyers check it for debt, unpaid taxes and inventory build-up.
Book of Business: The recurring customers or clients a service business serves, and the revenue they represent.
Broker Success Fee: The commission a business broker earns when a sale closes. It is normally paid by the seller and written into the listing agreement.

Capital Expenditure · CapEx: Spending on equipment, vehicles, technology or facilities needed to keep the business competitive. Budgeted separately from the purchase price.
Cash Flow: Money actually moving in and out of the bank. A business can show profit on paper and still run out of cash.
CIM · Confidential Information Memorandum: The marketing pack a broker or seller prepares describing the business, its numbers and the opportunity. Buyers usually sign a confidentiality agreement before receiving it.
Confidentiality Agreement · NDA: Signed before a seller releases detailed financials, the business name or customer information.
Contingency: A condition that must be satisfied for the sale to close — loan approval, lease assignment, inspection results, or franchise transfer approval.
Customer Concentration: How much of the revenue comes from a handful of customers. Heavy concentration is a risk buyers and lenders price into the deal.

Deal Structure: How the purchase is arranged: asset or share sale, cash at closing, seller financing, earn-outs and what happens to working capital.
Debt Service Coverage Ratio · DSCR: Business cash flow divided by annual loan repayments. Lenders typically want at least 1.15 to 1.25 after your own salary.
Due Diligence: The buyer’s verification window: checking financials, tax returns, contracts, leases, licences, staff and legal exposure before closing.

Earn-Out: Part of the purchase price paid after closing, only if the business hits agreed revenue or profit targets.
EBITDA: Earnings before interest, taxes, depreciation and amortisation. The standard profit measure for larger businesses, usually quoted as a multiple.
Escrow: Money held by a neutral third party until conditions are met, often kept back after closing to cover post-sale claims.
Exclusive Listing: One broker holds the right to market a business, as opposed to a listing shared with a wide network of brokers.

Feasibility Study: A lender-ordered report on whether the business and its market can support the loan. Common for franchises, hotels and care homes.
Franchise Resale Approval: The franchisor’s right to review and approve or reject a buyer before a franchise changes hands.

Goodwill: The part of the price above the value of the physical assets — brand, reputation, customer relationships and location.
Guaranty Fee: The upfront fee SBA charges to guarantee a loan, calculated on the guaranteed portion of the loan and usually financed into it.

HELOC: Home equity line of credit. A common way buyers fund part of a down payment, though lenders set rules on how it can be used.

Inventory Financing: A credit line secured by stock on hand, common in retail, wholesale and distribution businesses.

Letter of Intent · LOI: A mostly non-binding letter setting the price and key terms so both sides can start formal contracts and due diligence.
Lease Assignment: Transferring the seller’s lease to the buyer. Landlord consent is almost always required and can take weeks.
Liquidity: Cash left in the business after closing to cover slow months, repairs and unexpected surprises.

Management Transition Agreement: A contract where the seller stays on for an agreed period after closing to hand over relationships and operations.
Multiple: Price expressed as a factor of profit — for example 3x SDE for a small local business, or 6x EBITDA for a larger one.

Non-Compete Agreement: The seller’s promise not to open or work for a competing business within a set area for a set number of years.

Owner's Compensation: What the owner actually pays themselves. It is a key add-back when working out the true cash profit of the business.

Personal Guarantee: The buyer’s promise to repay the loan personally if the business cannot. Standard on SBA loans for small businesses.
Preferred Lender · PLP: A lender authorised by SBA to approve its own loans, which can cut the wait for a decision by weeks.
Purchase Agreement: The binding contract — asset purchase agreement or stock purchase agreement — setting price, terms, and exactly what transfers.

Recurring Revenue: Subscription or contract income that repeats month to month. Buyers pay a higher multiple for it.
ROBS · Rollover for Business Startups: A structure that lets a buyer use retirement funds to finance a purchase without an early withdrawal penalty. It needs specialist setup.

SBA 7(a) Loan: SBA’s main programme for business purchases. SBA guarantees part of the loan so more lenders are willing to participate.
SBA 504 Loan: Financing for owned premises and major equipment arranged through a certified development company, with a below-market second piece.
SBA Express: A faster, smaller 7(a) loan of up to $500,000 with a 50% SBA guarantee and lighter paperwork.
Seller Discretionary Earnings · SDE: Owner cash profit: net income plus the owner’s salary, benefits and personal add-backs. The usual measure for smaller businesses.
Seller Financing: The seller lends part of the purchase price to the buyer, repaid in instalments after closing. It shows the seller believes in the numbers.
Share Sale · Stock Sale: Buying the company’s shares, which means its contracts, licences and liabilities come with it.

Tangible Net Worth: Assets minus liabilities, excluding goodwill and other intangibles. Some lenders set a minimum before approving a loan.
Tax Return Reconciliation: Comparing the seller’s filed tax returns against the profit claimed in the listing. A wide gap is a serious red flag.
Transition Period: The agreed window after closing in which the seller trains the buyer and introduces them to key customers and suppliers.

Underwriting: The lender’s review of the buyer, the business and the deal before a loan is approved.

Working Capital: Money needed for day-to-day operations — payroll, inventory, rent. Sale agreements usually set a target amount to be left in the business.
Working Capital Adjustment: A post-closing true-up if the working capital actually delivered differs from the agreed target.