The words you will hear in a sale, in plain English.

Expenses added back to profit because a new owner would not expect to pay them. Common examples are a one-time legal bill, a personal vehicle, or a family member on payroll who does not work in the business. Each add-back should be supported by records, since unsupported ones are often rejected in diligence.

Valuation & earnings

EBITDA restated to show what the business would earn under normal ownership. Adjustments remove one-time costs, non-operating income, and owner-specific spending, and may reset owner pay to a market rate. Buyers and lenders usually test each adjustment before relying on the figure.

Valuation & earnings

The buyer purchases selected assets of the business, such as equipment, inventory, contracts, and goodwill, and takes on only the liabilities it agrees to. The seller's legal entity stays with the seller, along with any excluded assets and liabilities. Buyers often prefer this structure, and the tax result for the seller depends heavily on entity type and how the price is allocated.

Deal structure

The transfer of the business's contracts, such as customer, supplier, and license agreements, to the buyer. Many contracts require the other party's consent before they can be assigned, and some require consent even in a stock sale if control changes. Identifying those contracts early avoids delays at closing.

Legal & documents

A document that formally transfers ownership of physical assets, such as equipment, furniture, and inventory, from seller to buyer. It is standard at closing in an asset sale. It usually refers back to the purchase agreement for the full terms.

Legal & documents

A professional who helps an owner prepare the business, find buyers, and negotiate a sale. Business brokers generally work on smaller companies and M&A advisors on larger ones, though the line is loose. Most are paid mainly through a success fee at closing, sometimes with an upfront retainer, so read the engagement agreement carefully.

Deal structure

Tax on the gain from selling an asset held as an investment. In the US, proceeds from a business sale may be taxed partly at long-term capital gains rates and partly as ordinary income, depending on structure, entity type, and how the price is allocated. State taxes may also apply, so advice from a tax professional early in the process is worthwhile.

Deal structure

A common pricing basis where the seller keeps the cash in the business and pays off its debt at closing. The buyer receives the business with a normal level of working capital and no borrowings. The purchase agreement defines exactly what counts as cash and what counts as debt.

Deal structure

The point at which the final documents are signed, funds move, and ownership passes to the buyer. Some deals sign and close on the same day; others sign first and close once conditions such as lender approval or third-party consents are met. Several adjustments and obligations continue after closing.

Deal structure

A detailed document describing the business for serious buyers, covering its history, operations, customers, team, and financial performance. It is typically prepared by the seller or their adviser and shared only after an NDA is signed. A shorter, anonymous teaser often comes first.

Legal & documents

How much of total revenue comes from the largest customer or a small handful of customers. The more revenue that depends on a few accounts, the more a buyer worries about what happens if one leaves. High concentration can lower the price or lead to an earn-out tied to those customers.

Valuation & earnings

A secure online folder where the seller shares documents with a buyer and its advisers during diligence. Access can be limited by person and tracked. An organized data room makes diligence faster and reduces repeated requests.

Due diligence

Attachments to the purchase agreement where the seller lists exceptions to its representations, such as pending disputes, key contracts, or known issues. Something properly disclosed there generally cannot later be claimed as a breach. Careful, complete schedules protect the seller.

Due diligence

The buyer's investigation of the business before closing, covering financials, taxes, legal matters, customers, employees, operations, and property. Its purpose is to confirm that what the buyer was told is accurate and to find risks that affect price or terms. It usually begins in earnest after a letter of intent is signed.

Due diligence

Part of the price paid after closing only if the business reaches agreed targets, such as revenue or gross profit over a set period. It can bridge a gap between what a seller believes the business is worth and what a buyer is willing to pay up front. Clear definitions of the targets, how they are measured, and who controls the business afterward help avoid disputes.

Deal structure

Earnings before interest, taxes, depreciation, and amortization. It approximates the cash profit the operations produce, before financing choices and accounting for long-lived assets. Unlike SDE, it treats a market-rate salary for whoever runs the business as a normal expense.

Valuation & earnings

The value of the operating business as a whole, regardless of how it is financed. Equity value, what the owners actually receive, is roughly enterprise value minus debt plus excess cash, before working capital adjustments. Headline prices are usually quoted on an enterprise value basis.

Valuation & earnings

A portion of the purchase price held by a neutral third party for a set period after closing. It gives the buyer a source of recovery if there are claims under the purchase agreement or adjustments to the price. Whatever is not used is released to the seller at the end of the period.

Deal structure

A commitment, usually in the letter of intent, that the seller will not seek, encourage, or negotiate other offers for a set period. It gives the buyer time to complete diligence and financing without competition. The length of the period and what ends it early are worth negotiating.

Legal & documents

A letter from an independent financial adviser stating whether the price in a proposed deal is fair, from a financial point of view, to a particular party. Boards of larger or public companies commonly obtain one to support their decision. It is not a guarantee of value and is less common in sales of owner-run businesses.

Valuation & earnings

The part of the purchase price above the fair value of the identifiable assets, reflecting things like reputation, customer relationships, and a trained team. In many small business sales it is the largest single component of the price. How goodwill is treated, including whether any of it is personal to the owner, can affect taxes for both sides.

Valuation & earnings

Similar to escrow, except the buyer keeps the withheld portion of the price rather than a third party. It is paid to the seller later, less any agreed claims or adjustments. Because the buyer holds the money, the terms for releasing it matter a great deal.

Deal structure

A promise by one party to cover the other for specified losses, most often those caused by a breach of representations or certain pre-closing liabilities. It is usually limited by a threshold before claims can be made, a maximum amount, and a time period during which claims are allowed. Escrows and holdbacks often back it up.

Legal & documents

A short, non-binding letter from a buyer expressing interest, often with a price range and basic terms. It is common in processes with several buyers and helps the seller decide who moves forward. It comes before a letter of intent and commits neither side.

Legal & documents

Steps taken to keep important employees through the sale and afterward, such as retention bonuses, new employment agreements, or clear communication about their future. Buyers often want to meet key people before closing. When and how employees are told about the sale deserves careful planning.

After closing

Transferring the lease for the business premises to the buyer. Most commercial leases require landlord consent, and the landlord may ask for financial information, a personal guarantee, or new lease terms. Since losing the location can affect the whole deal, buyers and lenders usually make it a condition of closing.

Legal & documents

A document outlining the main terms of a proposed deal, such as price, structure, timing, and key conditions. Most of it is non-binding, but provisions like exclusivity and confidentiality usually are binding. Signing one typically starts full due diligence and drafting of the purchase agreement.

Legal & documents

Internal financial reports, such as monthly profit and loss statements and balance sheets, prepared to help run the business. They are usually unaudited and may differ from tax returns in timing or treatment. Buyers compare them against tax returns and bank records to see whether they tell the same story.

Due diligence

A shorthand for price expressed as a multiple of an earnings figure, usually SDE for smaller businesses and EBITDA for larger ones. The multiple reflects size, industry, growth, and risk. A multiple means little until you know which earnings number it is applied to and which assets and liabilities are included in the price.

Valuation & earnings

An agreement that the seller will not start or work for a competing business within a defined area and time after the sale. It protects the goodwill the buyer paid for. Enforceability depends on the law where it applies, and courts generally look at whether the scope, geography, and duration are reasonable.

After closing

A contract in which a potential buyer agrees to keep information about the business confidential and use it only to evaluate the deal. It is normally signed before financials or the business name are shared. Many also restrict the buyer from contacting employees, customers, or suppliers directly.

Legal & documents

An agreement that the seller will not try to lure away customers or employees of the business for a set period after closing. It is narrower than a non-compete and is often included alongside one. As with non-competes, enforceability varies by jurisdiction.

After closing

The degree to which the business relies on the current owner for sales, customer relationships, technical knowledge, or daily decisions. A buyer is paying for earnings that continue after the owner steps back. Documented processes and a capable team reduce this risk.

Valuation & earnings

An individual's promise to repay a business debt personally if the business cannot. Lenders commonly require one from the buyer's owners on acquisition loans, and landlords sometimes require one on leases. Sellers should know whether any guarantees they gave in the past will be released at closing.

Financing

The final reconciliation of estimated closing figures, such as working capital, cash, and debt, once actual numbers are known. The price then moves up or down to match. The purchase agreement sets the timeline, the accounting rules to use, and how disagreements are resolved.

After closing

The binding contract that sets out every term of the sale, including price, adjustments, representations, indemnification, and conditions to closing. It is called an asset purchase agreement or a stock purchase agreement depending on the structure. It replaces the letter of intent as the governing document.

Legal & documents

How the total price is divided among asset classes such as inventory, equipment, non-compete agreements, and goodwill. In a US asset sale both buyer and seller report the allocation to the IRS, and different classes can be taxed differently. It is negotiated as part of the deal and should be agreed in writing.

Deal structure

A report, usually prepared by an independent accounting firm, that tests whether reported earnings are accurate and likely to continue. It examines revenue, expenses, add-backs, and working capital, and often reconciles the books to bank statements and tax returns. It is not an audit, but lenders and buyers rely on it heavily.

Due diligence

Revenue that comes back predictably, such as subscriptions, service contracts, or maintenance agreements. Buyers generally value it more than one-off project or transactional revenue because future earnings are easier to forecast. Signed contracts and a history of renewals make the case stronger.

Valuation & earnings

Statements of fact the seller makes in the purchase agreement about the business, such as the accuracy of the financial statements, ownership of assets, and compliance with laws. If a statement turns out to be untrue, the buyer may have a claim. Exceptions are listed in the disclosure schedules.

Legal & documents

An insurance policy, usually bought by the buyer, that pays for losses from certain breaches of the seller's representations. It can reduce how much of the price is held in escrow and limit the seller's exposure after closing. It is more common in larger transactions because of premiums and minimum deal sizes.

Legal & documents

Part of the seller's proceeds reinvested as an ownership stake in the business or the buyer's acquiring company, instead of taken as cash. The seller keeps a share of any future gain or loss. The value of that stake depends on the buyer's plans, the rights attached to it, and when it can be sold.

Deal structure

A loan made by a bank or other approved lender and partly guaranteed by the US Small Business Administration, often used to buy small businesses. The guarantee lets lenders accept terms they might not offer otherwise. The SBA sets rules on the buyer's cash injection, seller notes, and personal guarantees, and those rules change from time to time.

Financing

Part of the purchase price that the seller agrees to receive over time, with interest, instead of at closing. Buyers and lenders often read it as a sign of confidence in the business, and it reduces the cash the buyer needs at closing. Senior lenders may limit when and how the note can be repaid.

Financing

The total financial benefit the business provides to one full-time owner-operator. It starts with pre-tax profit, then adds back that owner's salary and benefits, interest, depreciation, amortization, and one-time or personal expenses run through the business. SDE is the usual earnings measure for smaller, owner-run companies.

Valuation & earnings

Borrowing that is repaid before other debts and is usually secured by the assets of the business. In an acquisition it is typically the main bank loan. Other obligations, such as a seller note, are often subordinated to it, meaning they are paid only after the senior lender is protected.

Financing

The buyer purchases the ownership interests of the company itself, whether shares or LLC membership units. The entity continues as it was, with its contracts, licenses, history, and liabilities. Sellers often prefer this structure, and buyers typically ask for broader protections in the purchase agreement in return.

Deal structure

An agreement for the seller to provide certain help for a limited time after closing, such as introductions to customers, training, or continued use of shared systems. It sets out what is provided, for how long, and whether it is paid. A clear handover plan protects both the buyer and any payments still owed to the seller.

After closing

The short-term assets a business needs to operate, mainly receivables and inventory, minus short-term liabilities such as payables and accrued expenses. In a sale it is usually measured excluding cash and debt. A buyer expects a normal level of working capital to come with the business so it can keep running on day one.

Valuation & earnings

The agreed normal level of working capital that should be in the business at closing, often based on an average of recent months. If actual working capital at closing is above the peg, the price goes up; if it is below, the price goes down. The peg is frequently one of the most negotiated numbers in a deal.

Deal structure