Learning Center

Business Terms Explained

The words you will hear when buying or selling a business, in plain language. Professionals use these terms every day; you do not need to know them to get started.

Accounts Payable: Money the business owes suppliers or vendors but hasn't paid yet.
Accounts Receivable: Money customers owe the business but haven't paid yet.
Asking Price: The price the owner hopes to get. The final price is agreed between buyer and seller.
Asset Purchase: You buy the business's assets (equipment, inventory, name, customer lists) but not the legal company itself.; Most small business sales are asset purchases — it usually gives the buyer a cleaner start with fewer inherited liabilities.
Broker-Client Listing: A business listed on BPM by a broker on behalf of the owner who hired them.
Business Broker: A licensed professional who helps owners sell their business and finds buyers for it.
Business Valuation: A structured estimate of what a business is realistically worth.
Cash Flow: How much money the business actually generates after paying its normal bills.
CDFI: A community lender (often nonprofit) certified to help small businesses that banks may overlook.
Closing: The day the deal is finalized — you sign the papers, money changes hands, and ownership transfers to you.
Creative Financing: Mixing different ways to pay, such as a loan, seller financing, and an earn-out, so the deal works.
Due Diligence: Carefully reviewing the business before deciding whether to buy it.; You (and your CPA, attorney, and lender) look at financials, contracts, employees, leases, and risks so there are no surprises after closing.; Read the guide
Earn-In: You gradually earn ownership of the business by working in it and hitting agreed milestones.
Earn-Out: Part of the price is paid later, only if the business hits agreed results after the sale.
EBITDA: Profit before interest, taxes, and certain accounting costs — a common way to compare businesses.
Escrow: A neutral third party holds the money (and sometimes documents) until both sides finish what they promised.
Future Owner: Someone who wants to own a business: a buyer, partner, investor, or operator.
Future Owner Request: A free post saying what kind of business you want, where, and your budget, so owners can find you.
Goodwill: The value of the business's reputation, brand, and customer relationships — beyond just its physical assets.
Inventory: The products or materials the business has on hand to sell or use.
Investor and Operator Matching: An investor puts in the money and an operator runs the business day to day.
Letter of Intent (LOI): A short written summary of the key terms you and the seller agree on before drafting the full contract.; It's usually non-binding except for confidentiality and exclusivity, and it sets the stage for due diligence and the final purchase agreement.; Read the guide
LOI: Short for Letter of Intent — a written summary of the key deal terms before the full contract.; Read the guide
Management Buy-In: An outside manager (often you) buys into a business and joins the leadership team.
Non-Compete Agreement: The seller promises not to open a competing business nearby for an agreed period of time.
Owner Financing: Another name for seller financing — the current owner accepts payments over time instead of full cash at closing.; Read the guide
Ownership Pathway: A way to become an owner: buying outright, paying the owner over time, partnering, earning in, and more.; Read the guide
Partnership: Two or more people own and run the business together and share profits and decisions.; Read the guide
Purchase Agreement: The final legal contract that spells out exactly what you're buying and on what terms.
SBA 504 Loan: A long-term SBA loan for buying buildings or big equipment, made together with a bank and a local development company.; Read the guide
SBA 7(a) Loan: A bank loan partly guaranteed by the U.S. Small Business Administration, often used to buy a business.; Because the government backs part of the loan, banks can lend with a smaller down payment and a longer time to repay.; Read the guide
SBA Financing: A government-backed small business loan that often lets qualified buyers put as little as 10% down.; The Small Business Administration guarantees part of the loan so banks are more willing to lend for business purchases.; Read the guide
Secure Introduction: BPM connects a buyer and an owner only when both agree. Contact details stay private until then.
Seller Financing: When the current owner lets you pay part of the price over time instead of all at closing.; The seller acts a bit like a bank — you agree on a down payment, interest rate, and monthly payments. It often makes deals possible when banks alone can't cover the full price.; Read the guide
Seller's Discretionary Earnings (SDE): The total financial benefit a single owner-operator gets from the business each year.; SDE adds the owner's salary, benefits, and one-time expenses back into profit — it's the number most small businesses are priced from.
Stock Purchase: You buy the company itself, including its contracts, licenses, and any existing obligations.; Stock sales can help when licenses or key contracts are hard to transfer, but you also inherit past liabilities. Talk with a CPA and attorney first.
Succession: Handing the business to the next owner, such as a family member, employee, or buyer.; Read the guide
Succession Planning: The owner's plan for who will run — or own — the business after they step away.; Read the guide
Sweat Equity: Ownership you earn through the work you put in, instead of paying cash upfront.
Traditional Acquisition: Buying the whole business outright, usually with savings and a loan.
Transition Period: The time after closing when the previous owner trains you and helps hand off customers, staff, and vendors.
Working Capital: The everyday cash a business needs to pay bills, buy inventory, and cover payroll between sales.