Glossary

Seller's Discretionary Earnings — profit plus the owner's salary, owner perks, one-time costs, and interest, depreciation and amortization. Used for smaller, owner-run businesses (often under ~$1M profit). Answers: how much would one owner-operator take home before debt?

Earnings Before Interest, Taxes, Depreciation, and Amortization, after paying a market-rate manager. Used for larger businesses with management in place. Answers: how much would an investor earn if they hired someone to run it?

Expenses the seller says will disappear under new ownership — personal, discretionary, or one-time. Each addback is a claim; accept it only when a document (receipt or statement) proves it. Addbacks Are a Story; Bank Statements Are the Receipts.

Cash left after capital spending and working-capital needs. The figure that actually pays your debt — distinct from SDE or EBITDA, which can overstate it.

The number of years of profit a buyer pays up front — e.g. 3× SDE means three years of earnings paid today. Lower risk and higher growth earn higher multiples. The figure the multiple is applied to matters more than the multiple itself.

Debt Service Coverage Ratio — cash available for debt service divided by annual debt payments. Under SOP 50 10 8.1 (Oct 2026) the floor for most change-of-ownership deals is 1.25×, based on historical cash flow, not projections.

The ordered layers of funding in a deal, paid first → last: senior debt (SBA/bank, 70–90%), seller note (0–20%), investor equity/notes (0–20%), and buyer cash equity (10%+). Paid first takes the least risk; paid last takes the most.

Financing where the seller extends credit — the buyer pays part of the price over time. Reduces cash at close and aligns the seller's risk. To count as SBA equity it must be on full standby (no principal or interest) for the life of the SBA loan, and covers at most half the required injection.

A seller note (or other debt) on which no principal or interest is paid for the life of the SBA loan. Only a full-standby seller note can count toward the SBA equity injection, and only up to half of it.

A contingent payment: part of the price is paid only if the business hits future performance targets. Bridges a gap between buyer and seller price expectations; define the metrics tightly to avoid disputes.

The seller keeps a minority stake after close. Aligns incentives and lowers cash needed; under SBA, a seller who keeps equity must personally guarantee the loan for at least two years.

A U.S. Small Business Administration loan-guarantee program, the most common acquisition-financing tool for small U.S. deals. Under SOP 50 10 8.1 (effective Oct 1, 2026): $5M max per loan, 10% minimum equity injection, 1.25× DSCR, mandatory QoE at $3M+, and 100% U.S. citizen/national ownership.

The buyer's real cash put into the deal. Under SOP 50 10 8.1, at least 10% of total project cost on a change of ownership; only half of that may come from a full-standby seller note, so effectively 5% of project cost.

A deal funded with little or no buyer equity — rarely possible with SBA financing, which requires real equity. Usually combines a large seller note, an earnout, and investor capital. Zero buyer equity is not the same as zero cash at closing.

A written filter of acquisition criteria — industry, size, geography, revenue quality, concentration, owner role, team, deal type, and dealbreakers — that kills 95% of options in seconds so your time goes to the 5% you can win and run.

The materials a serious buyer sends within 24 hours of a request: one-page bio, personal financial statement, proof of funds, lender pre-qualification, résumé, credit report, acquisition web page, references, and an eligibility check. Built once, published in three versions.

An independent analysis confirming that reported earnings are real, recurring, and sustainable. Mandatory for SBA deals with a purchase price of $3M or more, alongside a business valuation; wise for most deals.

A target level of net working capital the seller must deliver at close, set in the LOI. Protects the buyer from a seller who quietly collects receivables and delays payables before closing; diligence tells you where to set the peg.

Letter of Intent — a mostly non-binding outline of deal terms (price, structure, seller note, working-capital peg, transition, contingencies, close date) that precedes a binding purchase agreement. Exclusivity and confidentiality clauses are typically binding.

A binding LOI clause requiring the seller to stop talking to other buyers for a set period (often 60–90 days) while you run diligence and arrange financing.

A fast 30-minute, five-question filter applied before spending real time on a target: fits the buy box, revenue flat or growing 3 years, cash flow covers 1.25× DSCR and a manager, the owner's job is replaceable in 12 months, and no single point of failure. One 'no' usually ends the review.

A tag on every recorded figure: Advertised (lowest trust), Seller-Reported (low), Document-Verified (high), or Adjusted Estimate (only as good as your assumptions). A listing's number and a QoE-verified number are not the same number.

Contacting business owners directly by letter, email, and phone rather than through brokers or marketplaces. Low competition; run as a multi-touch sequence over 8–12 weeks and tracked in a CRM.

The idea (popularized by Codie Sanchez) that unglamorous service businesses — HVAC, plumbing, laundromats, landscaping, pest control, accounting — have steady demand, little venture competition, and retiring owners, which can mean lower prices and better terms.

The idea (popularized by Alex and Leila Hormozi) that owning is half the game and improving is the other half — better offers, lead flow, pricing, hiring, and systems raise profit, and higher profit raises the business's value and eventual multiple.

Confidential Information Memorandum — the broker's detailed sales package describing the business, its financials, and the opportunity, released to a buyer only after an NDA is signed.

The value of a business above its hard assets — reputation, relationships, brand, and customer base. Most of what you pay for in a service-business acquisition is goodwill.

A holding company that owns operating companies but does no daily work itself. Each operating business sits in its own entity so a problem in one does not sink the others; the holdco holds the cash, sets strategy, and allocates capital.

A seller's promise to pay the buyer for losses caused by a broken representation or warranty, usually subject to a cap, a basket (deductible), and a time limit. The core risk-allocation device in a Purchase Agreement.

Debt repaid after senior debt in the capital stack. Seller notes are usually junior — paid after the SBA/bank loan — which is why they carry more risk and accept a higher return.

Dependence on one person (often the seller) whose loss would materially harm the business. A central diligence question is how much of the business leaves when that person walks out the door.

Non-Disclosure Agreement — the confidentiality contract signed before a broker or seller releases financials or a CIM. Signing and returning NDAs fast signals you are a real buyer.

How much the business relies on the seller personally — for customer relationships, key skills, licenses, or decision-making. High owner dependency lowers value and raises transition risk; a long, paid transition and a seller note tied to retention mitigate it.

Your personal promise to repay business debt if the company cannot. Required on most SBA 7(a) acquisition loans; it puts your personal assets at risk and is why debt sizing matters so much.

The seller's written statements about the business's condition — its finances, contracts, liabilities, and operations. If a rep proves false, indemnification determines who pays.

The time the seller stays after close to hand over relationships and knowledge — commonly 30 days to 12 months. A paid transition protects the cash flow you bought by keeping customers and staff connected to the new owner.

The lender's process of judging whether a loan will be repaid — credit, cash flow, collateral, and character. Under SOP 50 10 8.1 every acquisition is underwritten as a standard 7(a): full credit memo, independent valuation, and site visits.

An estimate of what a business is worth. Independent valuations are required for SBA acquisitions; the buyer's job is to find the true number from verified, repeatable cash flow, then decide what that number is worth to them.

The multiple you expect to receive when you eventually sell. Larger, well-run companies often earn higher exit multiples than small ones — the basis of multiple arbitrage — but exit multiples also move beyond your control with rates and buyer demand.

Annual cash returned to you divided by the cash you invested. A quick return metric for an acquisition; clearly identify whether it is before or after owner compensation, taxes, debt payments, and capital expenditures.

A purchase with no buyer cash. Rare, usually seller- and investor-financed, and not possible with SBA loans (which require a real 10% equity injection). Treat as an advanced move, not a starting plan; zero buyer equity is not the same as zero cash at closing.

Buying a smaller competitor and merging it into your platform business to share overhead, trucks, staff, and brand. A core holdco growth strategy once the first business runs without you.

The closing-day memo showing who pays what to whom — buyer equity, lender disbursement, seller note, and the seller's proceeds. Approved by buyer, seller, lender, and attorneys before any money moves.

Before closing, imagine it is two years later and the deal failed. Write down the three most likely reasons, then fix those three things now. The mental model for the Troubleshooting pitfalls table.