Free reference
Business-buying glossary
The terms you’ll meet across a deal, in plain English.
- SDE (Seller’s Discretionary Earnings)
- The true cash a business generates for a single owner-operator: net income plus owner compensation, interest, taxes, depreciation, amortization, and discretionary or one-time expenses. Most Main Street deals are priced on a multiple of SDE.
- EBITDA
- Earnings Before Interest, Taxes, Depreciation, and Amortization. Used for larger businesses (roughly $1M+ in earnings) where a management team, not the owner, runs day-to-day operations.
- DSCR (Debt-Service Coverage Ratio)
- Annual cash flow divided by annual loan payments. It tells a lender whether the business can safely cover its debt. SBA lenders typically want at least 1.15–1.25×.
- SBA 7(a) loan
- The U.S. Small Business Administration’s flagship loan program, widely used to finance business acquisitions with as little as 10% equity injection and terms up to 10 years for a business purchase.
- Equity injection
- The buyer’s down payment. SBA 7(a) requires a minimum of 10%, which can sometimes include a standby seller note.
- Seller note
- Financing the seller provides to the buyer, paid back over time. It reduces the bank loan, signals seller confidence, and can help satisfy the equity injection.
- LOI (Letter of Intent)
- A mostly non-binding document outlining the proposed price, structure, and terms of a deal, plus an exclusivity period during which the buyer conducts diligence.
- CIM (Confidential Information Memorandum)
- The marketing document a broker prepares describing a business for sale — financials, operations, and the growth story. Learning to read one critically is a core buyer skill.
- Add-back
- An expense added back to profit to reach SDE or adjusted EBITDA, because it is discretionary, non-cash, one-time, or owner-specific. Inflated add-backs are the most common way deals are mispriced.
- QoE (Quality of Earnings)
- A financial diligence study that verifies a business’s reported earnings are real, recurring, and sustainable. Often required by lenders on larger deals.
- Working-capital peg
- The normal level of net working capital (receivables + inventory − payables, excluding cash and debt) a buyer negotiates to inherit at closing so the business can operate day one.
- ETA (Entrepreneurship Through Acquisition)
- Becoming a business owner by buying an existing company rather than starting one. “Self-funded search” is the path where an individual buyer uses SBA financing and their own capital.