Glossary

You’ll Hear a Lot of Words as You Sell Your Business.

We’ll Make Sure You Understand Every One.

You’re an expert in your business, not in selling it. That’s why were here: to help you understand every step of the process, so you can continue to focus on your goals.

Let’s dig deeper into this process.

Download our more detailed glossary that breaks down the words and concepts you may encounter as you sell your business.

  • Accounts Payable (AP)
    Money your business owes to vendors and suppliers for goods or services you’ve already received. It shows up as a short-term liability on your balance sheet.
  • Accounts Receivable (AR)
    Money customers owe your business for work you’ve already completed or products you’ve already delivered. It counts as an asset, and buyers will look at how quickly you collect it.
  • Acquisition
    When one company buys another. The acquired company stops operating independently, though its people, products, and operations often continue under new ownership.
  • Addbacks
    Personal or one-time expenses run through the business that get added back to your earnings to show a buyer what the business truly earns under normal conditions. Common examples include owner compensation above market rate, personal vehicle expenses, or one-time legal fees.
  • Adjusted EBITDA
    Your EBITDA (see definition later) after removing one-time or unusual items, like a lawsuit settlement or a non-recurring expense, so buyers see a clean picture of your ongoing earning power. This is typically the number that drives your valuation.
  • Asset Purchase
    A deal structure where the buyer purchases specific assets of the business, such as equipment, customer contracts, and inventory, rather than buying the company itself. Buyers often prefer this structure because it limits their exposure to historical liabilities.
  • Asset Purchase Agreement (APA)
    The legal contract that defines exactly which assets are being sold, for how much, and under what conditions. This is one of the key documents you’ll sign at closing in an asset deal.
  • Balance Sheet
    A financial snapshot of your business at a single point in time: what it owns (assets), what it owes (liabilities), and what’s left over for you as the owner (equity). Buyers study this carefully.
  • Bench Strength
    The depth of capable managers and employees who can run the business day-to-day without you personally involved in every decision. Strong bench strength is one of the most reliable ways to increase your valuation, because it reduces a buyer’s transition risk.
  • Business Mix
    The spread of products, services, or customer types your business serves. A diverse mix is generally seen as lower risk than heavy reliance on a single customer or revenue stream.
  • Buyside vs. Sellside
    Two sides of the same transaction. Sellside means an advisor is representing you, the seller. Buyside means an advisor is representing a company looking to acquire businesses. Knowing which side your advisors are on matters.
  • Capital Expenditures (CapEx)
    Money spent on major assets needed to keep the business running or growing, like vehicles, equipment, or machinery. Buyers look at CapEx requirements to understand how much ongoing investment your business needs.
  • Closing
    The final step of the sale, where ownership officially transfers, all documents are signed, and you receive payment. Everything before this moment has been building toward it.
  • Confidential Information Memorandum (CIM)
    A detailed, professionally prepared document that presents your business to serious buyers after they’ve signed an NDA. It covers your history, financials, customers, operations, and growth potential. Your CIM is often a buyer’s first real look at your business, so it matters.
  • Data Room
    A secure online folder containing all the financial, legal, and operational documents a buyer needs to review during due diligence. A well-organized data room signals a well-run business.
  • Deal Structure
    The overall framework of how a transaction is put together, including how much is paid in cash versus earnout versus equity, whether it’s an asset or stock sale, and how risk is divided between buyer and seller. Structure affects what you actually walk away with.
  • Definitive Agreement
    The final, legally binding contract that covers every term of the sale. This is what gets signed at closing. It’s different from the LOI, which is a preliminary, non-binding agreement to move forward.
  • Due Diligence (DD)
    The buyer’s thorough investigation into your business before committing to close, covering financials, contracts, customers, and legal history. It can feel invasive, but it’s a normal part of every transaction. A well-prepared seller has very little to worry about.
  • Earnout
    A portion of your sale price that comes after closing, tied to how the business performs under new ownership. It can bridge the gap between what a buyer offers today and what you believe the business is worth, but the terms matter.
  • EBITDA
    Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s the most common way buyers measure a business’s profitability because it strips out financing and accounting decisions to show underlying earning power. Your valuation will almost certainly be expressed as a multiple of EBITDA.
  • Enterprise Value
    The total value of the business itself, independent of how much cash it holds or debt it carries. Think of it as what the operating business is worth before accounting for what’s in the bank or what’s owed.
  • Equity Value
    What you actually walk away with at closing. It’s Enterprise Value adjusted for the company’s cash, debt, and a few other items. This is your number.
  • Escrow
    A portion of your sale proceeds held by a neutral third party for a period after closing, to cover potential claims if something in the deal turns out to be inaccurate. Similar to a Holdback.
  • Exclusivity Period
    A window of time, often 30 to 90 days, after signing an LOI where you agree not to negotiate with other buyers. It gives the chosen buyer room to complete due diligence without competition pulling you away.
  • External Team
    The outside professionals helping you through the sale, including your M&A advisor, accountant, and attorney. Having the right external team in place before you go to market makes a meaningful difference.
  • Financial Buyer
    A buyer, such as a private equity firm, that acquires a business primarily as an investment rather than to combine it with an existing operation. They’re focused on returns and often keep the business running much as it is.
  • General Ledger
    The master record of every financial transaction your business has ever made. It’s the foundation your financial statements are built from, and buyers will want it to be clean and well-organized.
  • Goodwill
    The intangible value a buyer pays for beyond your physical assets: your reputation, customer relationships, brand, and the trust you’ve built over time. It’s real value, even if you can’t put it on a shelf.
  • Holdback (HB)
    Cash held in escrow, usually for about 12 months after closing, as protection for the buyer in case something you represented about the business turns out to be inaccurate.
  • Indemnification
    A legal promise you make as the seller that your representations about the business are accurate. If something surfaces after closing that contradicts what you stated, the buyer may seek recourse. Most sellers who’ve run an honest process have very little to worry about here.
  • Indication of Interest (IOI)
    An early, informal signal from a potential buyer that they’re interested and financially capable of making an offer. It’s less formal than an LOI and typically comes before serious negotiations begin.
  • Integration
    The process of combining two companies after a sale closes, including operations, staff, systems, and culture. How smoothly this goes often depends on how well buyer and seller aligned on expectations before closing.
  • Internal Team
    Your own employees and key managers, the people whose depth and capability buyers will evaluate when assessing how well the business can run without you.
  • Legal Due Diligence
    The portion of due diligence focused on your contracts and legal exposure, including employment agreements, non-compete clauses, vendor and customer contracts, and any pending legal matters.
  • Letter of Agreement (LOA)
    An early document between you and your M&A advisory firm that outlines the terms of your working relationship. It signals serious intent to move forward together.
  • Letter of Intent (LOI)
    A written but non-binding document where a buyer lays out their proposed price and key terms. It’s a strong signal of serious interest, and it typically opens the door to due diligence. The deal isn’t final until the Definitive Agreement is signed.
  • Merger
    When two companies combine into one new entity, with both sides viewed as roughly equal partners. Different from an acquisition, where one company absorbs the other.
  • Multiple
    A shorthand buyers use to price a business, calculated by multiplying EBITDA (or sometimes revenue) by a number that reflects market conditions, industry, and business quality. A higher multiple means a higher valuation.
  • Non-Disclosure Agreement (NDA)
    A legal agreement a buyer signs before seeing sensitive details about your business, committing not to share or misuse that information. No serious buyer should see your confidentials without one.
  • Post-Transaction Period
    The stretch of time after closing, typically 90 days to a year, when the actual transition between you and the buyer takes place. Planning this period carefully is one of the most important things you can do before signing.
  • Private Equity (PE) Firm
    An investment company that pools money from investors to buy businesses, grow them over several years, and eventually sell them for a profit. PE firms are one category of buyer, and there are good ones and ones that aren’t the right fit. The difference matters.
  • Profit & Loss Statement (P&L)
    A financial report showing how much your business brought in, what it spent, and what it earned or lost over a given period. Along with the balance sheet, it’s one of the first things any serious buyer will ask to see.
  • Purchase Price
    The total amount a buyer agrees to pay for your business. The headline number often comes with adjustments, such as earnouts, escrow, or working capital true-ups, that affect what you actually collect and when.
  • Qualified Buyer
    A buyer with the financial capacity, relevant background, and genuine intent to close. Not everyone who expresses interest is a real contender, which is why careful vetting matters before anyone sees your confidential information.
  • Quality of Earnings (QoE)
    An in-depth financial review, typically conducted by an independent accounting firm on the buyer’s behalf, that digs into your numbers to confirm your reported earnings are accurate and sustainable. Expect this in any serious transaction.
  • Representations and Warranties (Reps & Warranties)
    Formal statements you make as the seller that certain things about the business are true: the financials are accurate, there’s no undisclosed litigation, and so on. These form the basis of indemnification if something turns out to be false.
  • Rollover Equity
    Instead of taking 100% cash at closing, you reinvest a portion of your proceeds into ownership of the new combined company. It gives you a potential second payday if the business grows under new ownership.
  • Sell-Side Advisor / Investment Banker
    A professional hired by the seller to run the sale process, from preparing marketing materials and identifying buyers to negotiating terms and guiding the deal to closing. This is the role TREP Advisors plays for every client.
  • Stock Purchase
    A deal structure where the buyer purchases your ownership shares directly, taking on the company as a whole, including its history, contracts, and liabilities. Sellers often prefer this structure for its tax treatment.
  • Strategic Buyer
    A buyer already operating in your industry, such as a competitor, supplier, or complementary business, who wants to acquire you to grow their existing operation. Strategic buyers often pay more because of the synergies they expect to gain.
  • Synergies
    The added value a buyer expects to gain by combining your business with theirs, through cost savings, expanded market reach, or cross-selling opportunities. Buyers who see strong synergies are often willing to pay a premium.
  • Teaser
    A short, one-page summary that highlights the appealing features of your business without revealing your company’s name or location. It’s used to gauge buyer interest confidentially before sharing anything sensitive.
  • Trailing Twelve Months (TTM)
    Your financial performance over the most recent consecutive 12-month period, regardless of fiscal year. It’s a rolling, current snapshot buyers often want alongside your annual financials.
  • Trial Balance
    An internal accounting report listing the closing balance of every account in your general ledger at a specific point in time. It’s used to confirm your books are in balance.
  • Unqualified Buyer
    Someone who expresses interest in buying your business but lacks the funding, experience, or seriousness to close. Time spent with unqualified buyers is time and confidential information at risk.
  • Valuation
    The process of estimating what your business is worth, using methods such as comparable sales, earnings multiples, or discounted cash flow analysis. Understanding your valuation before you go to market is one of the most important things you can do.
  • Working Capital
    The cash, receivables, and inventory your business needs on hand to keep running day-to-day, calculated as current assets minus current liabilities. It’s typically adjusted at closing to make sure the buyer receives enough operating cushion to run the business without an immediate cash crunch.