GLOSSARY

Here are a few of the more common definitions related to a business transaction.

  • Asking Price – The total amount for which a business or an ownership interest is offered for sale.
  • Asset Sale – This term has two definitions. The proper definition depends on its usage:
    A. The means by which a business owner transfers ownership of tangible and intangible assets to another owner without transferring the ownership structure.
    B. The sale of a business enterprise at a price based solely upon the value of the tangible assets.
  • Blue-Sky – That portion of a requested price that cannot be supported through the application of established valuation methodology and which generates no economic benefit.
  • Business Broker – A Business Broker is an intermediary dedicated to serving clients and customers who desire to sell or acquire businesses.  A business broker is committed to providing professional services in a knowledgeable, ethical and timely fashion. Typically, a Business Broker provides information and business advice to sellers and buyers maintains communications between the parties and coordinates the negotiations and closing processes to complete desired transactions.
  • Client – An entity with whom a Business Broker has a fiduciary relationship.
  • Customer – An entity to a transaction, who receive services and benefits, but has no fiduciary relationship with the Business Broker.
  • Discretionary Earnings – The earnings of a business enterprise prior to the following items:
    Income taxes
    Non operating income and expenses
    Nonrecurring income and expenses
    Depreciation and amortization
    Interest expense or income
    Owner’s total compensation for those services which could be provided by a sole owner/manager.
  • Finder’s Fee – An amount paid to another party for locating and referring a client or customer.
  • Non operating or Non contributing Asset – An asset unnecessary to the operation of a business enterprise and the generation of its revenues.
  • Owner – A generic term used in business brokerage to represent the proprietor, general partner or controlling shareholder (singular or plural as appropriate) of a business enterprise.
  • Owner’s Salary – The salary or wages paid to the owner, including related payroll burden.
  • Owner’s Total Compensation – Total of an owner’s salary and perquisites, after the compensation of all other owners has been adjusted to market value.
  • Perquisites – Expenses incurred at the discretion of the owner, which are unnecessary to the continued operation of the business.
  • Sale Pending or Under Contract -Someone has made a written offer to purchase the business, and the seller has accepted that offer. This agreement is a contract so signing places the business “under contract.” Once a business is “under contract,” the contract is binding and the seller cannot change their mind and sell to someone else. Since business transactions are fairly complex and require a number of financial and legal steps to close the sale, a business may remain as “sale pending” for a few weeks to a few months. Now, having said that, things sometimes happen that causes that sale to fall through. So if you really like that business we suggest you follow it on our website to see if it comes back on the market or ends up with a SOLD indication.
  • Standby Creditor / Standby Promissory Note – As a condition of loan approval, some SBA lenders routinely require the seller to carry a Standby Promissory Note. Generally 10% to 20% of the purchase price of the business. In essence this places the seller in a second position and restricts them from collecting or enforcing the note. Typically these notes restrict when payments will start and how much interest can be paid and when. The SBA has a Standby Agreement form SBA 115 you can checkout for some of the possible provissions
  • SBA Certified Lenders – The SBA Certified Lender includes banks and other lenders who have a track record of following SBA procedures and success with SBA-guaranteed loans. By following these procedures, the lender can receive faster loan turn-around from the SBA, who makes the final credit and eligibility decisions. The expertise of the bank’s loan officers helps make the SBA process faster and more accurate.  (Working with this type of lender usually take much longer from application to approval that working with a Preferred Lender).
  • SBA Loans – Term loans from a bank or commercial lending institution that the SBA guarantees as much as 80 percent of the loan principal. SBA financing programs vary depending on a borrower’s needs. SBA-guaranteed loans are made by a private lenders and guaranteed up to 80 percent by the SBA, which helps reduce the lender’s risk and helps the lender provide financing that’s otherwise unavailable at reasonable terms.
  • SBA Preferred Lenders – These lenders have the highest level of autonomy the SBA affords to lenders. According to the SBA, Preferred Lenders have authority for “loan approval, closing, and most servicing and liquidation authority and responsibility.” The SBA set up the Preferred Lender Program (PLP) to provide expedited service to borrowers who use these lenders. (When possible it is always a good idea to work with a Preferred Lender as the process from application to approval is much faster).
  • Transaction Value – The total of all consideration passed at any time between the Buyer and Seller for an ownership interest in a business enterprise and may include, but not limited to, all remuneration for tangible and intangible assets such as furniture, equipment, supplies, inventory, working capital, non competition agreements, employment and/or consultation agreements, licenses, customer lists, franchise fees, assumed liabilities, stock options, stock or stock redemptions, real estate, leases, royalties, earn-outs and future considerations.