Glossary of Terms

The asking price is the amount a business owner is requesting for the sale of their business. It is typically based on a valuation of the company’s cash flow, assets, and market conditions, but it may differ from the final sale price depending on negotiations, deal structure, and buyer financing.

A professional intermediary who facilitates the sale or acquisition of a privately held business. Depending on the engagement, a business broker may assist with valuation, confidential marketing, buyer identification and screening, negotiations, due diligence coordination, and transaction management through closing.

The process of estimating the value of a business by analyzing its financial performance, earnings, assets, market conditions, risk factors, and other characteristics that may influence value. In the Main Street market, valuations most often emphasize Seller’s Discretionary Earnings (SDE) and market data from comparable business sales to develop a realistic and supportable estimate of value.

When a business broker represents a buyer in the acquisition of a business. Depending on the engagement, the broker may assist with identifying opportunities, evaluating financial information and cash flow, developing offers, negotiating terms, coordinating due diligence, and guiding the transaction through closing.

Cash flow generally refers to the movement of money into and out of a business. In Main Street business valuations and sales, Seller’s Discretionary Earnings (SDE) is commonly used as a measure of owner-related earnings and may be used by buyers, lenders, and business brokers when evaluating a business.

The final stage of a business transaction when all documents are signed, funds are transferred, and ownership officially changes hands.

A legal agreement signed by a prospective buyer requiring them to keep confidential the identity of the business and any non-public financial, operational, and proprietary information they receive. In most Main Street business sales, a signed NDA is required before confidential information is shared.

The process in which a buyer thoroughly reviews a business’s financial records, operations, legal matters, and other key information to verify the information provided by the seller and assess risk before completing the purchase. It typically takes place after an offer is accepted and before closing.

A valuation method that estimates a business’s value based on its projected future cash flow, adjusted to present value using a discount rate to account for risk and time. While more common in larger middle-market transactions, DCF may be used in certain small business valuations when cash flow is stable and projections are reliable.

A measure of a business’s operating profitability before the impact of financing decisions, taxes, and non-cash expenses. It is commonly used in middle-market transactions to evaluate performance and compare companies, but in small and Main Street businesses, Seller’s Discretionary Earnings (SDE) is more often the primary cash flow metric.

The total value of a business’s operations, including both equity and debt, and represents the full purchase price of the company before considering how the deal is financed. In small and Main Street transactions, enterprise value is typically reflected in the agreed-upon sale price of the business assets, prior to adjustments for assumed liabilities or working capital.

A neutral third-party arrangement in which funds and transaction documents are held until all terms and conditions of a business sale are satisfied. Once those conditions are met, the escrow agent releases the funds to the seller and finalizes the transfer of ownership to the buyer.

The price at which a business would change hands between a willing buyer and willing seller, when neither is under compulsion to act and both have reasonable knowledge of the relevant facts.

The formal records that summarize a business’s financial performance and financial position, typically including the profit and loss statement, balance sheet, and statement of cash flows. These documents help buyers and lenders evaluate the company’s profitability, cash flow, financial health, and overall financial condition during the sale process.

The intangible value of a business beyond its physical assets, including its reputation, customer relationships, brand, location, and earning power. In small and Main Street business sales, goodwill often represents the portion of the purchase price attributed to the company’s established cash flow and ongoing operations.

A written document that outlines the principal terms and structure of a proposed business acquisition before definitive agreements are completed. While many provisions are generally non-binding, certain provisions may be binding depending on the terms of the LOI.

A valuation metric that expresses a business’s value as a factor of its cash flow, earnings, or revenue. In small and Main Street business sales, the business value is often evaluated in relation to a multiple of Seller’s Discretionary Earnings (SDE), based on industry norms, risk factors, and market conditions.

Refers to the buying, selling, or combining of businesses. While the term is often used for larger middle-market and corporate transactions, it also applies to the sale and acquisition of privately held small and Main Street businesses.

An agreement that may restrict a seller from engaging in certain competitive activities after the sale of a business, subject to applicable law and the terms of the transaction. The scope and enforceability of non-compete provisions vary by jurisdiction and circumstance.

A business’s earnings after adjustments for certain non-recurring, discretionary, owner-related, or unusual items to provide a clearer view of its ongoing financial performance.

A transaction in which a buyer purchases the ownership shares of a company, acquiring the legal entity itself along with all of its assets, liabilities, contracts, and obligations. While less common in small and Main Street business sales than asset sales, stock sales may be used in certain circumstances depending on tax, legal, or licensing considerations.

A transaction structure in which the seller finances a portion of the purchase price, allowing the buyer to make agreed-upon payments over time. Seller financing may be used alongside buyer equity or third-party financing and can affect the structure, risk, and economics of a transaction.

The transition period is generally intended to support knowledge transfer, customer and vendor introductions where appropriate, and continuity as ownership changes.

A range of valuation multiples observed among businesses within a particular industry or market segment. Industry can provide useful context, but multiples may vary considerably based on financial performance, size, risk, growth, customer concentration, transferability, market conditions, and other business-specific factors.