Glossary of Business Buying Terms (Every Buyer Should Know)

Buying a business can be complex, especially if you’re new to the process. At BizBroker+, we help buyers and brokers navigate every step. Understanding key terms ensures you’re informed, confident, and ready to make smart decisions.

Key Terms Every Buyer Should Know

1. SDE (Seller’s Discretionary Earnings)
SDE is the total financial benefit a business owner derives from the business, including salary, perks, and profits. This metric is crucial for small businesses to determine value.

2. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
EBITDA measures a company’s operating performance. It’s often used by investors to compare profitability across businesses.

3. LOI (Letter of Intent)
A non-binding agreement outlining the initial terms of a potential deal. BizBroker+ provides a LOI template to help buyers and brokers get started.

4. CIM (Confidential Information Memorandum)
A detailed document provided by sellers, containing business overview, financials, operations, and market positioning. Reviewing the CIM is essential before making offers.

5. Due Diligence
The process of verifying all aspects of a business, including financial statements, legal documents, contracts, and operations. BizBroker+ guides buyers to conduct thorough due diligence.

6. Valuation Multiple
A factor used to calculate business value, often applied to EBITDA or SDE. For example, a 3x multiple on $100,000 SDE would suggest a $300,000 business value.

7. Absentee Owner
A business where the owner’s daily involvement is minimal, ideal for investors looking for passive income opportunities.

8. Asset Sale vs. Stock Sale
Different methods of buying a business. In an asset sale, you purchase individual assets and liabilities, while in a stock sale, you acquire the ownership entity.

9. Escrow
A neutral third-party account that holds funds during a transaction until all agreed-upon conditions are met. This protects both buyer and seller.

10. Confidentiality Agreement / NDA
An agreement to protect sensitive business information during discussions and due diligence.

Get Started Today
Ready to put your knowledge into action? Explore businesses for sale with BizBroker+ and get the tools, resources, and expert guidance you need: Buy a Business | Sell Your Business.