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 and purchase of privately held businesses by representing either buyers or sellers in the transaction process. Business brokers manage the transaction process from valuation and confidential marketing through buyer screening, negotiations, due diligence, and closing coordination. A broker coordinates valuation guidance, marketing efforts, buyer screening, negotiations, and transaction management.

The process of determining the fair market value of a business by analyzing its financial performance, earnings, assets, market conditions, and other factors that 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 the interests of a buyer in the acquisition of a business. The broker assists with identifying opportunities, evaluating financials and cash flow, determining value, structuring offers, negotiating terms, coordinating due diligence, and guiding the transaction through closing to protect the buyer’s interests.

Cash flow is the earnings a business generates that are available to pay debt, reinvest in the business, and provide income to the owner. In Main Street business sales, cash flow typically refers to Seller’s Discretionary Earnings (SDE), which adjusts reported profit to reflect the true economic benefit available to a single owner. Buyers, lenders, and business brokers commonly use SDE to evaluate a business’s value and its ability to support a new owner.

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 sell between a willing buyer and a willing seller, both fully informed and under no pressure to act. In the small and Main Street market, fair market value is typically based on the company’s cash flow, assets, and comparable sales.

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, generally non-binding agreement that outlines the principal terms and structure of a proposed business acquisition before definitive legal documents are drafted. An LOI typically addresses the purchase price, payment terms, transaction structure, due diligence period, exclusivity, and closing conditions, providing a framework for negotiating and completing the transaction.

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 purchase price is most commonly calculated as 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.

A legal contract in which a seller agrees not to own, operate, manage, work for, or have a financial interest in a competing business within a defined geographic area and time period after the sale. In Main Street business transactions, a non-compete agreement helps protect the goodwill, customer relationships, and value of the business being transferred.

A business’s adjusted profits after removing non-recurring, discretionary, or unusual expenses to reflect its true ongoing earning power. In small and Main Street business sales, normalizing earnings helps buyers determine sustainable cash flow and establish a supportable valuation.

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 agrees to finance a portion of the purchase price, allowing the buyer to make payments over time rather than paying the full amount at closing. In Main Street and small business acquisitions, seller financing is commonly used to bridge valuation gaps, supplement third-party financing, align the interests of the buyer and seller, and demonstrate the seller’s confidence in the business’s continued performance.

The agreed-upon timeframe after closing during which the seller remains involved in the business to train the buyer, transfer operational knowledge, and support a smooth ownership transition. Depending on the transaction, this may include introducing key customers, vendors, and employees. The transition period helps preserve goodwill and maintain business continuity.

The typical range of earnings or cash flow multiples at which businesses in a specific industry are bought and sold. In the small and Main Street market, these multiples are most often based on Seller’s Discretionary Earnings (SDE) and vary by industry due to differences in risk, stability, growth potential, and transferability.