Business Brokering
Terms to Know
Terms Buyers and Sellers Should Know
Business brokering (buying AND selling) is a complex process. Below is a list of terms commonly used when acquiring or selling a business.
Acquisition: The process of buying a company.
Asset Sale: A sale where specific assets in a business are purchased, but not the equity stock of the business.
BizBuySell: A popular business brokering website portal (sometimes mistakenly referred to as "BuyBizSell.")
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Cash Flow: A term referring to the timing and amount of revenue moving through a business.
Confidential Information Memorandum (CIM): Detailed information provided by the seller about the business, its assets, and market opportunity. The CIM is often referred to as the "Offering Memorandum."
Due Diligence: Conducting a thorough appraisal of the target business. Due Diligence typically includes in-depth review of a business' financials, operations, and technology.
Earn-Out: A deal that includes additional future compensation based on performance.
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EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is typically more common for larger business transactions.
Fair Market Value: The value of a business based on demand in the market.
Letter of Intent (LOI): A non-legally binding document used to outline the basic terms of a potential offer.
Leveraged Buyout (LBO): Financing options that involve significant borrowing.
Non-Compete Agreement: Agreeing not to start a competing business post-sale. Note: As of 2024, Non-Compete Agreements for employees became unenforceable for a majority of employees. Non-Compete Agreements during the sale of a business are still, for the most part, enforceable. If you are seeking a Non-Compete Agreement, consult an attorney for legal advice prior to making an offer.
Offer-to-Purchase: The legal document submitted by the Buyer that contains the Buyer's official offer.
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Small Business Administration (SBA): SBA is the only cabinet-level federal agency fully dedicated to small business and provides counseling, capital, and contracting expertise as the nation’s only go-to resource and voice for small businesses.
Seller Discretionary Earnings (SDE): An important metric calculated by taking the Net Operating Income of a business and adding back in discretionary expenses such as health insurance, 401k, depreciation and amortization.
Seller Financing: When a Seller provides financing options to the Buyer.
Stock Sale: The purchase of the owner's shares of a business; not the individual assets within the business.
Valuation: Assessing the worth of the business using various methods.