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.
- Assumption of Debt
- The buyer takes over some of the business's existing loans or bills as part of the price, instead of paying all of it in cash.
- The lender usually has to agree. Have a CPA and an attorney check every debt before you take it on.
- 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.
- Buy-Sell Agreement
- A written plan between partners for what happens to an owner's share if they leave, retire, become ill, or die.
- 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.
- Equity Injection
- The part of the price the buyer pays from their own money, which lenders require before lending the rest.
- Escrow
- A neutral third party holds the money (and sometimes documents) until both sides finish what they promised.
- ESOP
- An Employee Stock Ownership Plan: a way for employees to become owners of the business over time.
- Exclusivity
- A promise in the letter of intent that the seller won't talk to other buyers for a set time.
- 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
- Leveraged Buyout
- Buying a business mostly with borrowed money, usually repaid from the business's own profits.
- It works only when the business earns enough to cover the loan payments. A lender and a CPA can tell you whether the numbers fit.
- Lien
- A legal claim someone (often a lender) has on the business's property until a debt is paid.
- 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.
- Management Buyout
- The people who already run the business buy it from the owner.
- 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 Note
- The written promise to repay the part of the price the seller lets you pay over time.
- 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.
- USDA Business & Industry Loan
- A business loan partly backed by the U.S. Department of Agriculture for businesses in towns of 50,000 people or fewer. It can be used to buy a business.
- You apply through a regular lender, and the USDA backs most of the loan (85% for loans under $5 million in 2026). Loans can run up to 40 years. Ask a lender whether the business location qualifies.
- Working Capital
- The everyday cash a business needs to pay bills, buy inventory, and cover payroll between sales.