Small Business Owner’s Glossary of Essential M&A Terms

Speaking the Language – Your Glossary of M&A and Business Sale Terms

Selling your business is one of the most important decisions you’ll ever make. But when it’s time to step into the world of mergers and acquisitions, the language itself can feel like a roadblock. Key M&A terms pop up in discussions with buyers, business brokers, and advisors—sometimes leaving owners at a loss.

Understanding business sale terms empowers you to ask smart questions, evaluate offers confidently, and keep control over your deal process. This M&A glossary was designed to strip away the jargon and put practical knowledge right at your fingertips.

Valuation Basics and Financial Terms

• Seller’s Discretionary Earnings (SDE): The total financial benefit a business owner takes home each year, including salary, perks, and one-time or personal expenses paid by the business.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. Used mostly for larger businesses, EBITDA provides a clear picture of operating performance before non-cash or non-operating expenses.
• Add-backs: Owner-specific or one-off costs added back to profit. These adjustments showcase your business’s true earning power, such as personal expenses, above-market salary, or rare legal fees.
• Valuation Multiple: The factor multiplied by SDE or EBITDA to calculate your business’s fair value. Multiples can vary based on your industry, business size, and risk profile.
• Working Capital: The cash needed to keep your business running day-to-day. Effective management of working capital ensures you can cover bills and payroll without issue.

Deal Structure Terms and the Process of a Business Sale

• Letter of Intent (LOI): An initial, non-binding agreement outlining the basic terms a buyer is offering before moving forward with the deal.
• Due Diligence: The buyer’s process of thoroughly reviewing your business—financials, contracts, operations—to confirm all facts and assess risks before a final deal.
• Earn-out: A portion of the purchase price paid out over time, based on your business’s ability to hit certain performance goals after the sale.
• Asset Sale vs. Stock Sale:
  • Asset Sale: Selling off individual business assets (like equipment or inventory), not the entire business entity.
  • Stock Sale: Selling ownership shares, which transfers the entire business entity and its obligations to the new owner.
  • Curious about the differences? Read our full breakdown here.
• Escrow: A neutral third party holds funds until all deal conditions are met, protecting both buyer and seller during the transaction.

Your Trusted Guide

You don’t have to memorize every business sale term or become an M&A expert overnight. But the more comfortable you are with these basics, the more confident and prepared you’ll be throughout your sale.

When things get complicated, your business broker is there as your expert “translator”—helping you navigate every step and explaining what really matters.

Bookmark this M&A glossary for future reference. Ready to discuss your business sale? Contact our expert team for a consultation. We’re here to help you succeed every step of the way.