Plain-English Glossary

Add-back

See add-backs — an expense added back to show the business's real earning power.

Add-backs

Expenses added back to profit because they're really owner benefits or one-time costs (owner salary, personal car, a one-off legal bill). They raise SDE — so verify each one.

Asset sale

Buying the things the business owns (equipment, customers, name, inventory) rather than the legal company itself. Most small-business deals are asset sales.

Customer concentration

How much of revenue comes from one customer. High concentration = high risk: if that customer leaves, the business can collapse.

Due diligence

The homework stage: verifying the business is exactly what the seller claims, using real documents.

EBITDA

Earnings Before Interest, Taxes, Depreciation & Amortization — the 'true earnings' number used for larger, manager-run businesses (it doesn't add back an owner's salary).

Earnest money

A good-faith deposit a buyer puts down (usually into escrow) to show they're serious after an offer is accepted.

Escrow

A neutral, licensed third party that holds the money and only releases it when ownership actually transfers — so nobody wires a stranger and hopes.

LOI (Letter of Intent)

A written outline of the deal you want to do — price and key terms — signed before the final contract and full due diligence.

Multiple

The number you multiply earnings by to get a price. Main-street businesses often sell for ~2–4x SDE.

NDA (Non-Disclosure Agreement)

A confidentiality agreement — both sides promise to keep the deal and the business's private details secret.

Proof of funds

Evidence a buyer genuinely has the money to buy — so sellers know an offer is real before opening their books.

Purchase Agreement (APA)

The final, binding contract (often an Asset Purchase Agreement) that actually transfers the business at closing.

Quality of Earnings (QoE)

A deep accounting review that strips out one-time and aggressive items to reveal a business's true, repeatable earnings.

Reps & warranties

The seller's written promises about the business (the numbers are true, no hidden lawsuits, etc.). If they lie, you have legal recourse.

SBA 7(a) loan

A regular bank loan for buying a business, but the government promises to cover the bank if you can't pay — so the bank lets you borrow with far less money down (often ~10%). It's how most people actually afford to buy a business.

SDE (Seller's Discretionary Earnings)

The total yearly financial benefit one owner-operator gets from a business — profit plus the owner's salary, perks, and one-time costs added back. The main number small businesses are priced on.

Seller financing (seller note)

When the seller lets you pay part of the price over time instead of all at closing — reduces the cash you need and signals the seller's confidence.

Stock sale

Buying the legal company itself, including its history and liabilities. Less common for small businesses.

Working capital

The everyday cash a business needs to operate (to buy inventory, make payroll) before new revenue comes in. Who provides it is negotiated in the deal.