Resources · Deal terms
The words a buyer will use on you.
Two sentences each — what it means, and why it matters to you. Search, or jump by letter.
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Add-back
An expense added back to profit because it isn’t expected to continue under new ownership — an owner’s above-market salary, a one-time legal bill, a personal vehicle run through the business.
Why it matters to a seller
Add-backs raise the earnings a buyer values the business on, so getting them right can meaningfully raise your price. They also have to be defensible in diligence.
Adjusted EBITDA
EBITDA after reasonable add-backs and normalizations — the earnings figure most buyers actually build a valuation on.
Why it matters to a seller
This is usually the number your price is a multiple of. Understanding how it’s calculated is understanding how your price is calculated.
Asset sale
A deal structured as a purchase of the company’s assets (equipment, contracts, goodwill) rather than its shares.
Why it matters to a seller
Asset and stock sales have very different tax and liability consequences for a seller. The structure can change what you keep as much as the price does.
Cash at close
The money wired to you on the day the deal closes — cash in hand, not owed later.
Why it matters to a seller
It’s the most certain money in any offer. Two offers with the same headline can have very different cash at close.
Data room
A secure place — usually online — where you share financials, contracts, and records with a buyer during diligence.
Why it matters to a seller
A clean, organized data room speeds a deal and builds buyer confidence. A messy one invites price chips and delay.
Diligence
The buyer’s review of the business before closing — financials, customers, contracts, legal, operations — to confirm what they’re buying.
Why it matters to a seller
Diligence is where deals slow down, get repriced, or fall apart. Knowing what a buyer will look at lets you prepare instead of react.
Earnout
A portion of the price paid later, only if the business hits agreed targets after the sale.
Why it matters to a seller
An earnout can bridge a gap on price, but it turns part of your proceeds into a bet on the future — often one you no longer fully control.
EBITDA
Earnings before interest, taxes, depreciation, and amortization — a common proxy for a business’s operating profit.
Why it matters to a seller
Most valuations are expressed as a multiple of EBITDA, so it’s the foundation of your number.
Escrow
Part of the price held by a third party for a set period after closing, available to the buyer if certain claims arise.
Why it matters to a seller
Escrow is money you’ve technically sold for but can’t touch yet. The size and length of the holdback are negotiable and matter.
Holdback
Money withheld from the purchase price at close, released later once conditions are met.
Why it matters to a seller
Like escrow, it delays some of your proceeds and ties them to post-close conditions. Read the release terms closely.
Letter of intent (LOI)
A mostly non-binding document setting out the key terms of a proposed deal before full contracts are drafted.
Why it matters to a seller
Signing an LOI usually starts an exclusivity period. It sets the frame for everything that follows, so the terms in it matter more than they look.
Multiple
The number multiplied by earnings to reach a valuation — a “5x multiple” on $1M of EBITDA implies a $5M value.
Why it matters to a seller
Small changes in the multiple move your price a lot. What drives it — size, growth, customer concentration, durability — is worth understanding.
Net working capital
The everyday operating capital (receivables and inventory less payables) a business needs to keep running.
Why it matters to a seller
Deals usually require you to leave a “normal” level of working capital in the business. A working-capital true-up can adjust your proceeds after close.
Rollover equity
Equity you keep in the business after selling — a minority stake under the new owner rather than cashing out entirely.
Why it matters to a seller
Rollover lets you take money off the table now while staying exposed to future upside. It’s only as good as the buyer you roll with.
Seller note
Part of the price the buyer pays you over time, with interest, like a loan you’ve extended to them.
Why it matters to a seller
A seller note is money you’re owed later, not money in hand. Its value depends on the buyer’s ability and willingness to pay.
Stock sale
A deal structured as a purchase of the company’s shares, transferring the entity as-is, including its liabilities.
Why it matters to a seller
Often more favorable to sellers on taxes, but buyers weigh the liabilities they inherit. Structure is a negotiation, not a given.
Working-capital true-up
A post-close adjustment that settles the difference between the working capital left in the business and the agreed target.
Why it matters to a seller
It can add to or subtract from your final proceeds weeks after closing. Agreeing a fair target up front avoids surprises.