Glossary of Business Sale Terms

| 4 min read

If you’re hoping to get a better understanding of some of the words that are commonly used in the process of selling a company, you’re sure to find everything you need in this glossary.

Accommodation

A room, establishment, or general place that is attached to the business. In these types of transactions, they are typically included in the sale, but don’t necessarily have to be.

Acquisition document

A document that can be sent to similar companies that may be interested in expanding their portfolio.

Agreement of sale

A contract that is signed by both parties, where the buyer legally agrees to purchase the company and the seller promises to make the trade.

(Also known as a purchase and sale agreement)

Amortization

Typically used for any “intangible” assets that belong to the firm that may be included in the sale, like brand equity, patents, etc.

Appraisal

The estimated value of the corporation (sellers will typically need to have a business appraisal before advertising their company for sale).

Approach list

A list of agencies in the same industry with a similar or higher turnover or asking price (commonly used for the acquisition document).

Asking price

The base price that the seller will ask for their business (in most cases this isn’t the final price, but gives buyers an idea of the value).

Commercial goodwill

The brand recognition, customer loyalty, reputation and more; often one of the most important intangible assets of a company.

Depreciation

When the value of the business’ tangible assets decline over time (which is why many upgrade their machinery and equipment to boost value before selling).

EBITDA

A calculation of the organization’s income or net profit, with non-cash expenses being included in the operating income.

(Also known as adjusted net/earnings before amortization, depreciation, interest, or taxes/operating profit).

Energy performance certificate (EPC)

A document that estimates the energy efficiency of the establishment. EPCs are valid for 10 years and are essential for these sales.

Freehold

When the business owner is also the owner of the establishment and the land it stands on.

Handover period

A transition between the old and new owner, where the seller helps by introducing the buyer to the business, its operations, etc. after the purchase.

Information memorandum

A document containing an overview of the enterprise, i.e. premises information, history, stock and financial information (a few of many examples).

(Also known as a sales brochure)

Leasehold

An establishment or piece of land used for business operations that is leased or rented out.

Management structure

Can either be run by an owner (when the company is directly owned by the owner), or under management (when a manager is hired to run the firm).

Net profit

After tax, this is the potential cash earnings after all outgoings and expenses are taken into consideration (as long as the company is financially sound).

(Also known as operating profit)

Non-disclosure agreement (NDA)

A legally binding document to prevent confidential information from being shared publically.

(Also known as a confidentiality agreement)

Profit and loss

A financial summary including income, outgoings and more within a stated period.

Projection

An estimate of the financial position the business may be in in the future, taking into consideration factors like current operations, financial statements, economic conditions and more.

Quick ratio

The ratio of liquid assets to liabilities. Businesses with a lower amount of liquid assets than liabilities are likely to cause financial issues that could damage the reputation of the company and lower its value.

(Also known as the acid test ratio)

Residual value

The estimated market value of assets at the end of a certain time period (can often be important to prospective buyers).

Small business rate relief (SBR)

Can be applied to businesses with a rateable value lower than £15,000.

Sole proprietorship

A business that’s owned by a single individual only. They are responsible for all the operations and liabilities of the company.

Stock at value

The process of determining the value of the company’s assets, either as a part of the asking price or an additional cost.

(Also known as assets at value)

Timescale

Either the estimated or the owner’s desired timeframe for the sale process.

Trading entity

The business’ type of trading account (for example, sole trader, limited company, etc.)

Valuation

The process of finding the value of the company (taking a number of factors into consideration, such as cash flow, profitability, growth prospects and much more).

Working capital

Capital that can readily be converted to allow for a smoother transaction, as it can help to avoid financial obstacles that can interfere with the selling process.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
Contact us about this article

We would love to hear what you think about this article and how we could improve it. Please do let us know. However, we shan't be able to reply to your specific questions. If you have a question about a document, please contact us.

Leave feedback about this page