Buying a business comes with its own vocabulary, and most of it gets thrown at you mid-deal when you don't have time to look it up. These are the terms I see trip up first-time buyers most often. Each one is a 2-minute read in plain English, with the math or an example where it helps.
The total financial benefit to a single full-time owner-operator: net profit plus the owner's salary, perks, and one-time costs added back.
Cash flow divided by annual debt payments. It tells a lender whether the business can pay its own loans, and 1.25x is the SBA floor.
The seller's marketing document for the business: financials, operations, and the story, packaged to make a buyer want to dig in.
A mostly non-binding offer that sets price, structure, and terms before you spend real money on due diligence.
A loan the seller gives you for part of the purchase price, repaid over time instead of paid in cash at close.
A chunk of the price the seller only collects if the business hits agreed targets after close, used to bridge a valuation gap.
The target amount of working capital that must be in the business at close, so you don't inherit an empty till.
An independent accountant's report that stress-tests the seller's reported earnings to confirm the cash flow is real.
Documentation showing you actually have the cash and financing to close, which brokers often require before sharing a CIM.
Want the full mechanics, not just the definitions?
The blog goes deep on valuation, SBA financing, reading a CIM, and writing an LOI. The free SBA calculator runs the DSCR math on any deal in seconds.
