Business acquisition glossary

This glossary defines the terms buyers, brokers, and lenders actually use on Main Street deals — SDE, add-backs, seller notes, lease assignment, and more — so you can read a listing and a CIM without guessing.

Last updated September 5, 2026

  • 338(h)(10) — A joint tax election that treats a qualifying stock sale as an asset sale for federal income-tax purposes.
  • Absentee Owner — An owner who does not work in the business day to day and relies on a manager or team to operate.
  • Add-Backs — Adjustments that add certain expenses back to reported profit so earnings reflect a new owner’s likely benefit.
  • Asking Price — The seller’s advertised price for the business, before negotiation, inventory true-up, or closing adjustments.
  • Asset Sale vs Stock Sale — Whether the buyer purchases selected assets and assumed liabilities, or the equity of the company itself.
  • Assignment Fee — A fee the landlord or franchisor charges to consent to transferring the lease or franchise to the buyer.
  • Balloon Payment — A large principal payment due at the end of a note when the amortization schedule is longer than the loan term.
  • Broker — A licensed intermediary who markets a business, screens buyers, and helps negotiate a sale for a fee.
  • Bulk Sale — A transfer of a business’s inventory or assets outside the ordinary course, which can trigger notice rules for creditors.
  • Business Broker — A broker who specializes in selling operating companies — especially Main Street and lower-middle-market businesses — rather than residential real estate.
  • Buyer Profile — A short statement of what a buyer can purchase — budget, financing, industry, geography, and timeline — used to qualify inquiries.
  • Cap Rate — Capitalization rate — net operating income divided by property value, used mainly when real estate is part of the deal.
  • Cash Flow — The money a business generates that can service debt, pay an owner, or be reinvested after ordinary operating needs.
  • CIM — A confidential information memorandum — the broker’s detailed overview of the business after the buyer signs an NDA.
  • Closing — The moment ownership transfers — funds are released, documents are signed, and the buyer takes the assets or stock.
  • COGS — Cost of goods sold — the direct cost of products or ingredients that produced the period’s sales.
  • Customer Concentration — The share of revenue that comes from a small number of customers — a credit, valuation, and diligence issue.
  • Debt Service Coverage — A ratio of cash flow available to the principal and interest payments the acquisition loan will require.
  • Discretionary Earnings — Another name for the owner’s total financial benefit from a small business, closely related to SDE.
  • Due Diligence — The buyer’s investigation of financials, operations, legal matters, lease, and customers after an LOI and before closing.
  • Earnout — Deferred purchase-price payments that depend on the business hitting agreed results after closing.
  • EBITDA — Earnings before interest, taxes, depreciation, and amortization — a common earnings measure for larger or professionally managed companies.
  • Escrow — A neutral account that holds deposits, the purchase price, and sometimes a holdback until closing conditions are met.
  • FDD — The Franchise Disclosure Document the FTC requires franchisors to give prospective franchisees before they buy or take a transfer.
  • FF&E — Furniture, fixtures, and equipment — the tangible operating assets that usually transfer in an asset sale.
  • Four-Wall Economics — The profit and loss of a single location, before corporate overhead or other stores.
  • Franchise — A licensed brand and operating system; the buyer purchases the franchisor’s approval to operate, not only the local assets.
  • Gross Margin — Sales minus COGS, expressed in dollars or as a percentage of sales.
  • Holdback — A portion of the price held in escrow after closing to cover indemnity claims, working-capital true-ups, or missing items.
  • Intermediary — A neutral term for the advisor running a sale process — a business broker, M&A advisor, or investment banker, depending on deal size.
  • Inventory — Goods held for sale, often valued separately from goodwill and sometimes added to the advertised asking price.
  • IOI — An indication of interest — an earlier, often less detailed expression of price range and fit than a letter of intent.
  • Item 19 — The FDD section where a franchisor may — but is not required to — disclose financial performance representations.
  • Key-Person Risk — The danger that revenue or operations depend on one owner, chef, producer, or salesperson who may not stay.
  • Lease Assignment — The landlord’s required consent process to transfer the existing lease to the buyer at closing.
  • Listed Business — A business that is publicly offered for sale through a broker or marketplace, usually with an asking price.
  • LOI — A letter of intent that outlines proposed price and terms so both sides can start exclusive due diligence.
  • Lower Middle Market — Companies larger than typical Main Street shops, often with management teams and EBITDA-based pricing.
  • Main Street Business — A locally operated company — typically owner-operated and valued on SDE — such as a shop, restaurant, or service firm.
  • Management Team — The hired leaders who can run the business if the owner is not there every day.
  • Multiple — The ratio of price to a earnings measure such as SDE, cash flow, or EBITDA, used to compare similar businesses.
  • NDA — A nondisclosure agreement that limits how a buyer may use or share the seller’s confidential financials and customer information.
  • NNN Lease — A triple-net lease in which the tenant pays base rent plus taxes, insurance, and common-area or operating expenses.
  • Non-Compete — A seller’s agreement not to open or work for a competing business in a defined area and time after the sale.
  • Normalized Earnings — Earnings restated to a typical, repeatable year after add-backs, missing costs, and non-recurring items.
  • Occupancy Cost — Rent and related facility costs — base rent, NNN, percentage rent, and sometimes utilities — as a share of sales.
  • Off-Market — A business that is not publicly advertised for sale — on Bizgora, a dark map pin used for research rather than a live asking price.
  • Owner Financing — A structure where the seller accepts a promissory note for part of the purchase price instead of being paid all cash at closing.
  • Owner-Operator — A buyer or seller who works in the business as the primary manager, producer, or face of the shop.
  • Percentage Rent — Extra rent owed when sales exceed a breakpoint, common in retail and some restaurant leases.
  • Personal Guarantee — An owner’s promise to stand behind the business’s lease or loan with personal assets if the company defaults.
  • POS — Point of sale — the system that records sales, tenders, and often inventory and employee time.
  • Proof of Funds — Documents showing the buyer has cash or committed financing sufficient for the down payment and closing costs.
  • Purchase Agreement — The binding contract that sets price, structure, assets or stock conveyed, reps, and closing conditions.
  • Quality of Earnings — An independent review of whether reported or recast earnings are real, repeatable, and correctly classified.
  • Real Estate Included vs Leased — Whether the buyer is purchasing the land and building with the business, or only the operating business under a lease.
  • Recasting — Restating the seller’s financials so a buyer and lender can see ongoing earning power, usually via add-backs.
  • Remaining Lease Term — How many years are left on the current lease, including whether renewal options are documented and exercisable.
  • Representations and Warranties — Contract statements about the business — financials, title to assets, litigation, taxes — that the seller stands behind.
  • Right of First Refusal — A ROFR gives a landlord, franchisor, or partner the right to match a signed offer before the sale can close.
  • Royalty — The ongoing percentage of sales (or other fee) a franchisee pays the franchisor for the brand and system.
  • Same-Store Sales — The sales change for locations open in both periods, used to separate growth from newly opened or closed units.
  • SBA 504 — An SBA program built for fixed assets such as owner-occupied real estate and long-life equipment, not primarily for goodwill.
  • SBA 7(a) — The Small Business Administration’s flagship loan program, often used to buy a Main Street business or refinance acquisition debt.
  • SBA Preferred Lender — A lender with delegated SBA authority that can approve many 7(a) loans without sending the full file to the SBA for a second yes.
  • SDE — Seller’s Discretionary Earnings — the Main Street cash-flow figure that adds owner compensation and certain personal expenses back to profit.
  • Seller Note — A promissory note from the buyer to the seller for a portion of the price, usually secured and paid on a fixed schedule.
  • SKU — A stock-keeping unit — the identifier for a distinct product a retailer or wholesaler tracks in inventory.
  • Territory — The geographic area in which a franchisee or distributor is protected — or not — from same-brand competition.
  • Trailing Twelve Months — TTM — the most recent 12 consecutive months of results, used when a fiscal year is stale.
  • Transfer Fee — The franchisor’s charge to approve and process a franchise resale to a new owner.
  • Transition Period — The weeks or months the seller stays after closing to train the buyer and introduce customers, staff, and vendors.
  • UCC Search — A public-records search for Uniform Commercial Code liens against the seller’s assets.
  • Working Capital — Current assets minus current liabilities — the operating liquidity that should stay with the business at closing.
  • YTD — Year-to-date — results from the start of the current fiscal or calendar year through the latest available month.