Playbook Corporate Advisory, Inc.
Glossary - Commonly Used Terms
Alphabetical Order
A
Accounts Receivable: How much money is owed to the Company from completed work orders
Angel Investors: Private Individuals that will lend money to businesses at startup or early in lifecycle
Assets: Assets owned by the company – Cash, AR, Autos, Deposits are examples
Accumulated Depreciation: Investopedia Definition
Asking Price: The Price a Seller is offering the business for sale. Typically, average sales price is 85-90% of the initial listing price. Buyers should be aware of any price changes for the history of a company for sale.
Attorney: Hiring an M&A attorney is important when buying or selling a business. More information on why here.
B
Balance Sheet: The financial statement that shows the assets, liabilities, and owner’s equity of an entity on a particular date. This snapshot can be taken on any day of the year. Compare quarterly balance sheets from a company to get a sense of any seasonality in a business.
BizBuySell: A 3rd Party website for business sellers and buyers
BizQuest: A 3rd party website for business sellers and buyers
Blog: Our blog page for news and information on buying or selling a business.
Book Value: The same as Net Worth. Beware of any deferred maintenance or assets under reported.
Building Type: Commercial, Retail, Industrial or Residential property.
Business Broker: A licensed professional assisting business owners and buyers to either buy or sell a privately held business. Typically works for the seller under an exclusive listing agreement.
C
Capital Stock: The amount paid by shareholders for their ownership of a business.
Cash Flow: The amount available to the business before income tax, depreciation, interest and owner’s compensation and benefits. Compare statements quarterly to gain a sense of seasonality or for times that the business requires additional working capital to fund inventory.
Cash Flow Valuation: Buyers purchase a business based on a multiple of cash flow. Brokers commonly use Seller Discretionary Earnings (SDE) in their offering memorandums.
Costs of Goods Sold (COGS): The expenses incurred to purchase or manufacture the merchandise sold during a period. May include labor costs for certain types of businesses. Review the COGS report.
Collateral: The assets that you provide to guarantee a loan either to the bank or the Seller.
Current Assets: Assets owned by the business that can be turned into cash in a period of less than a year
Current Liabilities: Any debt or liabilities that is due in less than a year
D
Debt: A loan or other liability owed to another party
Debt to Equity: Accounting term that shows how much leverage a business has on its balance sheet
Depreciation: Accounting term that measures the reduction in value of a long term asset over time
Discounted Cash Flow: Valuation methodology used by an analyst in which projected future cash flows are determined based on historical results . Not commonly used for small business acquisitions.
Dividends: Distributions to owners (stockholders) of a corporation. Taxed at a different rate.
Down Payment: How much the Seller “wants” as a down-payment. If the selling price and Down Payment are the same then the business is being offered for 100% cash at closing.
Due Diligence: Once an offer is accepted a Buyer will submit a list of documents necessary to prove the business is what it is supposed to be. Common documents requested include bank statements, personnel records, contracts, leases, tax returns and sales tax reports. It’s very common for due diligence to take 60-120 days for a buyer to obtain financing and lender approval.
E
Equity: The same as Net Worth in the balance sheet. How much does the owner keep in the business?
Equity Financing: A method by which money is lent, but instead of the lender being paid back with a payment schedule, they receive a percentage of the business and they are paid back through the profits of the business
F
Fair Market Value: The realistic value at which Assets can be sold for in the short-run. Not liquidation value.
Free Cash Flow: This is the sum of Net Income, excess Owner’s Income, Interest, and Depreciation
Fiscal Year: A 12 month period that constitutes a company’s financials year and does not correspond to a calendar year
Fixed Costs: The costs that remain constant from month to month for a business. Ex., Lease Payments,
Fringe Benefits: The total amount of non-salary that may have been paid to the Owner, such as car allowance, health benefits, country club fees, expense allowances, bonus, etc. Commonly labeled add-backs in the SDE.
Full Time Employees: Number of employees at a company that are working full time for the business. These folks will receive W-2’s from the company at year end as well as paystubs.
G
Good Will: An Accounting Term – See Warren Buffett.
Gross Margin: The same as Gross Profit (GP)
Gross Profit: The amount obtained when deducting the Cost of Goods Sold from the Gross Sales
Gross Sales: The total revenue generated by the business
H
I
Income Statement: Logs of all the Income and Expenses of a business to determine if a business is profitable or losing money
Income Source: This part indicates what source was used for the figures
Inventory: The total value of the company’s inventory
Interest Expense: The costs the business incurred on certain loans
J
Jim Peddle: President, Playbook Advisory
K
L
Lease Expiration: Date the current lease terminates for a business. Determine if landlord is a 3rd party or Seller. Check for below or above market rent.
L/H Improvements: What improvements have been done on the premises and are considered as an asset
Liabilities: the obligations of the company
Listing Number: The ID that the business has been given. This number is imporatn because if it is on the broker association multiple listing services any broker can access it
Listing Agent Number: The listing agents ID number
Listing Office: The office ID of the broker’s officer who has the mandate to sell the business
Liquidation Value: When you determine what you can get for the Assets if you had to turn each into cash within 30 days
Long-Term Assets: Assets that can turn into cash
Long-Term Liabilities: Debts or other obligations that will not be paid within one year
M
Marketing: Identifying the business that your are in, pinpointing your customer and providing them with what they need in order to generate profit for the business
Market Rent: The amount a tenant pays for facility or office space that is at the prevailing market.
Multiple Listing Sheet: Listing where all the businesses are listed – similar to the one that the realtors use
Monthly Rent Expense: The monthly rental fees paid to landlord
Monthly Payment: This is the amount that you will pay per month for the number of payments to either a lender or landlord
Multiple Method: Uses the most recent year’s financial statements to establish a Cash Flow figure, then multiplies that figure by a certain factor to arrive at the value of the business
N
Negotiation: An interaction between parties with the goal of reaching a mutual understanding
Net Before Tax: The profit before taxes obtained by subtracting the Total Expenses from the Gross Profit
Net Income: The amount achieved after deducting all expenses and taxes from the Gross Margin
Net Worth: The Value of something once you deduct any money that remains owing on it. It can be calculated by deducting the liabilities from the assets
Non-Seller Financing: This will refer to the amount that you must borrow or have available in cash
Note Amount: The total amount that is to be financed, which is calculated by subtracting the down payment from the selling price
Note %: The interest rate that will be charged on the note
Non-Compete: This notes how long and for what distance the owner has agreed to not reenter a similar type of business
Non-Recourse Loan: The lender cannot come after you personally for any shortfall between the amount owing and the assets pledged
Number of Payments: number of months the note repayment is spread over
O
Owner Benefits: The total achieved by adding net before taxes + Owner’s Salary + Fringe Benefits + Interest Expense + Depreciation + Other
Owner’s Equity: Total Assets minus Total Liabilities
Owner’s Salary: What salary the business paid the owner/Seller
Organization Type: Whether it is a corporation, limited partnership, S Corporation, Public Company, etc.
P
Part-Time Employees: Some businesses may bring delivery personnel or certain types of workers in a part-time basis
P & L Statements: Another term for Income Statement and it means that the figures provided can be verified by examining the company’s financial statements
Playbook Advisory: A Chicago based Business Brokerage firm founded in 2016 by Jim Peddle
Pre-Tax Income: The amount of money that the business made prior to deducting what is owed for any and all applicable taxes
Pro Formas: A financial statement that uses historical data or trends and combines them with predictions for the future to produce financial statements of what the business may look like under certain conditions
Q
R
Reason for Sale: Why the owner has decided to sell the business (retirement, illness, relocation)
Recourse Loan: Where the business Assets are used as Collateral but you are personally responsible if the business is not able to make the payments and if the Assets provided do not cover the outstanding debt
Retained Earnings: The amount of profits held over in the company from previous Fiscal Years, which was left in the company
Revenue: All of the income that the company receives
Revision Date: If the information on the listing has been revised it will the date this was done
S
SBA Financing: Loans that are made through traditional institutions, but partially guaranteed by the U.S. Small Business Administration
SBA Fees: Here’s an example of a recently closed sba loan for a client of ours.
SDE: What is Seller Discretionary Earnings and why is it used for M&A deals.
Seller Financing: Commonly a seller will offer financing for a business sale for 3-10 years. Structure of a sale
Shareholder’s Equity: The difference between the company’s Assets and Liabilities
Skills Required: This section might note “management skills”, “sales skills” or even something more specific
Sq.Ft./Dim: The Size of the premises in total square feet and the dimensions
T
Tax Returns: This term refers to the fact that the numbers are right off the tax return. This is definitely the most accurate way to verify the reliability of the numbers and it is without questions the preferred way to evaluate a business
Terms and Options: A general outline of the lease terms
Tombstone: An M&A term used to highlight a transaction
Total Expenses: Total fixed expenses incurred by the business
Total Owner Benefit: Owner’s salary and other compensation
U
V
Variable Costs: An Accounting term related to operating expenses of a business tied to sales activity
W
Working Capital: The amount remaining after subtracting the Current Liabilities from the Current Assets. An important variable in the evaluation of a business to purchase.
X
None
Y
Years Established: Number of years the business has been active
Years Owned: Numbers of years that the Seller has owned the business
Z