If it's your first time involved in buying or selling a business, there may be some terms with which you're not familiar. Some of them are very important and having an understanding of what they mean will be very helpful.
So, with that in mind, we are sharing common terms used in business buying and selling.
EBITDA
EBITDA or earnings before interest, taxes, depreciation, and amortization, shows a company's current operating profitability by calculating its net earnings before the deduction of interest expenses, taxes, depreciation, and amortization. EBITDA is widely used to assess a company's performance with its present assets and under its current operational environment.
FF&E
Furniture, fixtures, and equipment (FF&E) are the tangible long-term assets that the company has for use in its daily operations. FF&E includes manufacturing equipment, computers, office furniture, display fixtures, and any other durable item that is useful in the company’s day-to-day activities.
The book value of FF&E assets is not always an accurate representation of its true value since aggressive depreciation is often applied so that business owners can recover costs more quickly. These assets may have a greater service life that extends beyond their full depreciation. So, for valuing a business, it's best to arrive at an accurate value of assets based on their potential rather than book value.
NDA
A non-disclosure agreement, or NDA, is one of the common terms used in business buying and selling that everyone should know. An NDA is a contractual agreement that serves to protect sensitive or confidential information disclosed by the seller to the buyer. Data, such as the company's financials, strategies, supplier information, and employee information can be crucial to a potential buyer in assessing the opportunity. However, if such information fell into the hands of the company's competition, it could prove to be damaging.
Owner Financing
Owner financing, or seller financing, is a situation where the current business owner provides a loan to the buyer to finance a portion of the business purchase price. The remaining amount is covered by the down payment and other sources of financing, if necessary.
Owner financing is becoming increasingly more common when you want to buy a business. It's beneficial to the seller because it helps to attract buyers who may not have the means to cover the full purchase price. It's also advantageous for the buyer because having owner financing in place makes it more attractive to a bank or other financial institution to provide additional financing.
SDE
SDE, or seller's discretionary earnings, is the net income before the deduction of the owner's compensation and benefits, other discretionary income or expenses, and depreciation, interest, and taxes. SDE is also sometimes referred to as the owner's cash flow and is arrived at using data from tax returns, income statements, and other financial documents.
With a better understanding of some of these key terms, you'll be better equipped when it comes time for you to buy a business. Find some exciting business opportunities by browsing through our current business listings.
