Essential Terminology Every Business Buyer Should Know.

Good morning Buyers!

The business-buying process is filled with terms and phrases that can feel like another language. Understanding these essential terms not only makes you more confident but also helps you avoid costly misunderstandings.

This week, we’re diving deep into the Essential Terminology Every Business Buyer Should Know.

“In the business world, the rearview mirror is always clearer than the windshield.” — Warren Buffett

Deal Tip of the Week: Learn the Lingo, Close the Deal

When you understand the terminology, you communicate better, negotiate smarter, and move faster.

•  EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a business's profitability. Often used to value a business.
  

• SDE (Seller’s Discretionary Earnings): A key metric for smaller businesses, representing the true cash flow available to the owner.
  

• LOI (Letter of Intent): A non-binding agreement that outlines the basic terms of a deal before due diligence.

Knowing these terms lets you talk confidently with brokers, sellers, and financiers—and avoid getting lost in translation.

🔍Key Financial Terms to Understand

Some terms come up in every deal. Here are the top ones to master:

📝 Checklist:

• Asset Sale vs. Stock Sale: Know the difference—asset sales transfer individual assets; stock sales transfer ownership of the entire entity.

• Working Capital: The cash available to run day-to-day operations. This is often adjusted during negotiations.

• Due Diligence: The process of verifying the business’s financials, contracts, and operations before closing.

Understanding these terms ensures you know exactly what you’re buying and how it will perform post-acquisition.

🗯Expert Soundbite 

“Mastering the language of business acquisition isn’t optional—it’s essential. If you don’t know the terms, you’re already a step behind.” — John Warrillow, Author of Built to Sell

💰 Common Contract Terms to Know

When reviewing agreements, watch out for these terms:

• Non-Compete Clause: Prevents the seller from starting a competing business after the sale.

• Earn-Out: Part of the purchase price is contingent on the business hitting certain performance targets post-sale.

• Indemnification: Protects you against certain losses or liabilities post-acquisition.

Mini Market Watch

• Confidence Slips: The CNBC/SurveyMonkey Small Business Confidence Index declined to 51 in Q2, down from 56 in Q1. Only 36% of small business owners describe current conditions as good, and 41% expect revenue growth over the next year, a drop from 52% previously.

• Economic Pessimism: The WSJ/Vistage Small Business CEO Confidence Index fell to 69.7, with 57% of CEOs anticipating economic deterioration in the next 12 months.

Despite challenges, small businesses remain resilient, adapting to economic shifts and seeking new opportunities. For more detailed insights or specific industry data, feel free to ask.

What’s Next

Next week: “Where to Find Businesses For Sale”

Forward this to a friend thinking about buying a business—or hit reply and send us your biggest buying questions.

Until next week,

— The Practical Buyer Team 

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_{Keep in Mind: Practical Buyer is for informational purposes only and does not constitute financial, legal, or investment advice. While we strive for accuracy, all content is provided "as is" and may not reflect the most current industry practices or regulations. Always consult with a qualified attorney, accountant, or advisor before making any business acquisition decisions.}

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