Glossary

The language of buying a business

79 terms you'll meet between first approach and completion, in plain English. For the full picture, read the buyer guides.

1

100-day planProcess: Your written plan for the first three months of ownership: what you will hold steady, what you will change, and who tells whom.

A

Add-backValuation: A cost removed from the profit figure because it will not continue after the sale, such as an above-market owner salary. Check each one; sellers over-claim.
Adjusted EBITDAValuation: Earnings before interest, tax, depreciation and amortisation, with one-off and owner-specific costs added back. The figure most multiples are applied to.
Asset purchaseDeal structure: You buy chosen assets and contracts rather than the company. Cleaner on liabilities, but consents, TUPE and tax need care.
Asset-based lending (ABL)Funding: Borrowing secured against debtors, stock or equipment. Useful where the business has a strong balance sheet but modest profits.

B

BIMBOBuyer types: A buy-in management buy-out: an incoming buyer teams up with existing managers to buy the business together.
Blind teaserProcess: A short anonymised summary of a business for sale, sent out before an NDA is signed so the company cannot be identified.
Bolt-onBuyer types: An acquisition added to a business you already own, usually for customers, capacity or geography.
BrokerProcess: An intermediary marketing the business on the seller's behalf. Their duty is to the seller, so treat their figures as a starting point, not a fact.

C

Cap (liability cap)Legal: The maximum the seller can be made to pay for warranty claims, often a percentage of the price.
Cash-free, debt-freeDeal structure: The normal UK basis: you buy the business without its cash and without its borrowings, with the price adjusted at completion.
Commercial due diligence (CDD)Due diligence: Testing the market, customers and competitive position: is the demand real and will it last?
CompletionProcess: The point at which the purchase legally takes effect, ownership passes to you and the money moves.
Completion accountsDeal structure: Accounts drawn up after completion to confirm actual cash, debt and working capital, with the price trued up either way.
Conditions precedentLegal: Things that must happen before completion, such as landlord consent, lender approval or a change-of-control waiver.
ConsiderationDeal structure: The total price, which may split between cash at completion, deferred amounts, an earn-out and sometimes shares.
CovenantFunding: A promise to your lender, for example keeping debt below an agreed multiple. Break one and the loan can become repayable.
Customer concentrationValuation: How much of revenue sits with a few customers. Above roughly 15% from any one customer, price it as risk.

D

Data roomDue diligence: The secure online folder holding the documents you review: accounts, contracts, staff records, property, IP and tax.
De minimis and basketLegal: Thresholds in the contract: claims below the de minimis are ignored, and total claims must pass the basket before you can recover.
Debt service coverFunding: Cash available to pay loans divided by the payments due. Lenders typically want comfortably above 1.5 times, with headroom for a bad year.
Debt-like itemsDue diligence: Things that behave like borrowings even if they are not labelled as such: overdue tax, pension deficits, unpaid bonuses, onerous leases.
Deferred considerationDeal structure: Part of the price paid at agreed later dates whatever happens to performance. Cheaper than debt, but the seller will want security.
Disclosure letterLegal: The seller's list of exceptions to their warranties. Anything properly disclosed cannot later be claimed for, so read it closely.
Drag-along and tag-alongLegal: Shareholder rights: drag lets a majority force a minority to sell, tag lets a minority join a sale on the same terms.
Due diligenceDue diligence: Your detailed investigation of the finances, legal position, operations and people before you commit.

E

Earn-outDeal structure: Part of the price paid only if the business hits agreed targets after completion, usually over one to three years.
Enterprise valueValuation: The value of the trading business itself, before cash and debt are counted. The headline number people quote.
Equity chequeFunding: The cash you and your investors put in yourselves. Most lenders expect meaningful personal money in the deal.
Equity valueValuation: Enterprise value plus surplus cash, minus debt and debt-like items. What the seller's shareholders actually receive.
Escrow / retentionDeal structure: Part of the price held by solicitors for a period, available to you if warranty claims or known issues arise.
ExclusivityProcess: An agreed period, usually 6 to 12 weeks, in which the seller cannot talk to other buyers while you complete diligence. Also called a no-shop or lock-out.

F

Financial due diligence (FDD)Due diligence: An accountant's review of the numbers: earnings quality, cash generation, debt-like items and working capital.

G

Good leaver / bad leaverLegal: Terms setting what a departing manager-shareholder receives for their shares, depending on how and why they leave.

H

Heads of termsProcess: A largely non-binding summary of the main deal points: price, structure, timetable and exclusivity. Agreed before lawyers draft the contract.

I

IndemnityLegal: A pound-for-pound promise to cover a specific known risk, such as an open tax enquiry. Stronger for you than a warranty.
Information Memorandum (IM)Process: The seller's detailed sale document covering the business, its market, its people and its numbers. Sometimes called a CIM.
Invoice financeFunding: Cash advanced against unpaid invoices. Often used to fund working capital after completion rather than the purchase price itself.

K

Key-person riskValuation: How much the business depends on one person, usually the owner, for sales, relationships or technical know-how.

L

LeakageDeal structure: Value taken out of the business between the locked box date and completion, such as dividends or owner bonuses. You get it back pound for pound.
Legal due diligenceDue diligence: A solicitor's review of contracts, ownership, employment terms, property, disputes and compliance.
Letter of intent (LOI)Process: Your written non-binding offer setting out price, structure and conditions. In the UK it usually sits alongside or inside the heads of terms.
LeverageFunding: How much of the price is borrowed, usually quoted as a multiple of EBITDA. More leverage lifts returns and lifts risk in equal measure.
Locked boxDeal structure: Price fixed on a past balance sheet date, with the seller promising no value has leaked since. Simpler than completion accounts but needs clean historic figures.
Long listProcess: Your initial set of possible targets before qualification. A short list is what survives a first filter against your criteria.

M

Maintainable earningsValuation: The level of profit you believe the business can repeat year after year, once one-offs and distortions are stripped out.
Management buy-in (MBI)Buyer types: An outside individual or team buys the business and steps in to run it. The classic route for a first-time owner.
Management buy-out (MBO)Buyer types: The existing management team buys the business, usually with a mix of debt, deferred payments and their own cash.
Material adverse change (MAC)Legal: A clause letting you walk away if something seriously damaging happens between signing and completion. Rare in UK SME deals.
Mezzanine financeFunding: Debt sitting behind the senior lender, more expensive and often with an equity element. It fills the gap between senior debt and your cash.
MultipleValuation: The number applied to earnings to reach a value. It reflects sector, size, growth, risk and how transferable the business is.

N

NDAProcess: Non-disclosure agreement. You sign it before seeing identifying or sensitive information about a target.
Normalised working capitalDeal structure: The usual level of stock, debtors and creditors needed to trade. Agree the target early: it is where late-stage arguments happen.

O

Off-marketProcess: A business not openly for sale, approached directly. Less competition, but usually a longer courtship and an unprepared seller.
Owner dependenceValuation: How far the business relies on the current owner personally. High dependence lowers what you should pay and usually means an earn-out or handover period.

P

Personal guarantee (PG)Funding: Your personal promise to repay if the business cannot. Common on smaller acquisition lending. Know exactly what it covers.
Platform acquisitionBuyer types: A first purchase chosen as the base for further deals, so management depth and systems matter more than price alone.
Proprietary deal flowProcess: Opportunities you source yourself through direct approaches and your network, rather than through brokers or listings.

Q

Quality of earnings (QoE)Valuation: An accountant's assessment of how sustainable and repeatable profits really are. The single most useful report for a buyer.

R

Recurring revenueValuation: Income that repeats predictably: subscriptions, retainers, long-term contracts. It justifies a higher multiple than project work.
Red flag reportDue diligence: A short, early diligence output listing only the issues that could stop the deal or change the price.
Restrictive covenantsLegal: Post-sale limits on the seller competing with, or poaching from, the business. Essential where relationships sit with the owner.
Roll-over equityDeal structure: The seller reinvests part of their proceeds into the new ownership structure, keeping them financially committed after completion.

S

Search fundFunding: A structure where investors back an individual to find, buy and then run one business, funding the search and then the acquisition.
Senior debtFunding: The main bank loan, first in line for repayment and security. Cheapest money in the structure, with the tightest conditions.
Share purchaseDeal structure: You buy the company's shares, taking on everything it owns and owes. The usual route for UK owner-managed businesses.
Share purchase agreement (SPA)Legal: The main contract: price, payment terms, warranties, indemnities, restrictions and what happens if things go wrong.
Signing and completionProcess: Where conditions must be met, contracts are signed on one date and completion happens later. In simple deals the two are the same day.
Site visitDue diligence: Seeing the premises and the team in normal working conditions. It tells you things no spreadsheet will.
Sustainable marginValuation: The profit margin the business can hold once under-investment, unpaid owner time or suppressed wages are corrected.
SynergiesValuation: Value created by combining two businesses: cost savings, or extra revenue. Be careful about paying the seller for savings you create.

T

Trade buyerBuyer types: A buyer already operating in the same or an adjacent market, usually able to justify a higher price through synergies.
Trial balanceDue diligence: The list of every ledger balance behind the accounts. Asking for it early shows whether the bookkeeping is in good order.
TUPELegal: UK rules that transfer employees to the new owner on their existing terms, with duties to inform and consult. Central to asset purchases.

V

Vendor due diligence (VDD)Due diligence: Diligence the seller commissions before going to market. Useful, but it is their report: verify anything you rely on.
Vendor loan noteFunding: The seller lends you part of the price, repaid with interest over time. A strong signal that they believe in the business.

W

W&I insuranceLegal: Warranty and indemnity insurance, covering breaches of warranty instead of chasing the seller. More common as deal size rises.
WarrantiesLegal: Statements of fact about the business given by the seller. If one turns out to be untrue, you may claim for the loss in value.
Working capital pegDeal structure: The agreed working capital target in the contract. Delivered above it, you pay more; below it, the price falls.