When you buy a business, it’s like learning a new language—literally! You often need to understand business terms and acronyms that aren’t always well-defined by the dictionary. We’ve put together this small business glossary to help you learn the meanings of topics and terms to help you breeze through your purchase like a pro. Call us today to learn more from an advisor.
Ready to Buy a Business? Here’s How to Talk Like an Insider
We’re not recommending that you try to learn every word and turn of phrase you might hear when buying a business. But educating yourself in the basics is a good way to launch your search, demystify the investment, and lessen stress.
Let’s dive in.
- Asset sales are where the buyer (you) purchases an existing business’s tangible and intangible operating assets.
- An acid test indicates a business’s ability to meet its immediate cash requirements. It's calculated by subtracting inventory and accounts receivables from a business’s short-term assets and then dividing it by short-term liabilities.
- A business broker assists buyers and sellers by estimating a business’s value, advertising it for sale, vetting potential buyers, and negotiating with qualified prospects.
- Buy-sell agreements provide for the future sale of a business interest and ensure a smooth ownership transition.
- A CBP (Confidential Business Profile) is a detailed analysis of a business’s history and future projections.
- A CSBL (Canada Small Business Loan) provides financing for buying assets but is limited to a percentage of the furniture, fixtures, and equipment’s value.
- Earn-out refers to a deferred payment or additional compensation in the future if the business performs in a certain way. It often requires the seller to remain with the company until the benchmark is achieved.
- A franchise typically involves licensing of trademarks and mandatory methods of doing business. It usually lasts for a fixed period and serves a specific geographical area.
- Intellectual property includes trademarks, copyrights, trade secrets, and other proprietary information.
- Lifetime capital gains exemptions are tax benefits on the sale of shares where owners can potentially receive the capital gain tax-free.
- An NDA (Non-disclosure Agreement) creates a legally binding confidential relationship between buyers and sellers.
- Non-compete agreements prevent key employees from setting up a business in direct competition with the one you’re buying.
- A SWOT or strengths, weaknesses, opportunities, and threats analysis helps you analyze how a company you’re interested in is doing today and how it might do in the future.
- A vendor take back or seller’s note is where the seller “takes back” a portion of the sales price, and the buyer pays it off over a defined time.
Work With a Business Broker to Buy a Business
An experienced broker like Bridge Business Brokers can expertly guide you through the process of buying a business and help ensure you receive a respectable return on your investment. As a world-leading brokerage, we work with individuals, investment groups, and corporations looking to buy a business that meets their criteria.