>> Business Terms – Business Brokering Glossary of Terms
Accounting: Recording, classifying, summarizing and interpreting financial information in terms of money, transactions and events.
Accounting Profit: A profit that appears on financial statements as a result of an accounting procedure or change.
Accrual accounting: Practice in which revenue and expense are entered into period in which they are earned and incurred regardless of when actual cash is paid or received.
Accrued payroll: It is a liability arising from employees salary expense that has been incurred but not paid.
Acid test: An accounting ratio for measuring the amount of liquid assets a company has on hand for pay it’s short-term bills.
Acquisition target: A company which is investigated in earnest for potential purchase.
Adjusted Book Value: The Book Value of a Business/Company is the equity left after adjusting the value of assets and liabilities that reflects estimated market value.
Assets: Items owned by a company which have some value, such as cash, account receivable, inventory, buildings, equipment, goodwill and tangible and intangible items.
Assets Sale: The sale of a business at a price based solely upon the value of the goodwill and tangible assets.
Audited Statement: A financial statement which has been verified by an accountant.
Bad debt ratio: The ratio of un-collectable funds divided by total sales, expressed as a percentage.
Blue Sky: An intangible portion of a price, above the maximum Good will, that cannot be reasonably supported through established valuation approach.
Book Value: The value of assets of a company after depreciation in company’s balance sheet.
Brand equity: The asset value associated with a particular trademarked name such as Coca-Cola.
Breakeven: This the point where one is making just enough money to meet the expenses means living at a subsistence level.
Business inertia: Resistance to change even though the business needs it.
Budgeting: The process of preparing a formal, detailed document listing past financial history and estimating the future years financial history in regard to income and expenses
Capital Management: Managing capital resources to provide company health for the long and short-term
Cash Accounting: Practice in which revenues are recognized when cash is received and expenses are recorded when paid
Cash Flow: It’s the sum of Net Income PLUS Non-recurring expenses (e.g. Interest, Taxes, Depreciation, Amortization, Owner’s compensation, Owner’s fringe benefits and Onetime expenses)
Compiled Statement: A financial statement that has not been verified for accuracy
Contingency Plan: A plan of action that kicks in if the original plan does not work out as expected.
Current Assets: Assets that can be converted into cash within a period of 12 months.
Current Liabilities: Debts that is due to be paid off within a 12-months period.
Depreciation: It is the percentage of initial purchase price devaluation of an asset assumed in a given year of operation.
Discretionary Earnings: The earnings of a business enterprise prior to the following items e.g. Income taxes, Non-operating income and expenses, Non-recurring income and expenses, Depreciation and amortization, Interest expense or income, & Owner’s total compensation for those services which could be provided by a sole owner/manager.
Due Diligence: It is verification process performed by the buyer in an acquisition, often hidden, aspects of the seller’s company and in-depth scrutiny of company proprietary confidential information and operations.
EBIT: (Earning Before Interest & Taxes ) – Cash Flow Less Interest
EBITA: (Earnings Before Interest, Taxes & Amortization) – Cash Flow Less Interest & Amortization
Fair Market Value: The price at which the asset of a company would transfer from a willing and informed seller to a willing and informed buyer acting rationally with free will in an open and unrestricted market
FIFO: (first-in, first-out) is an inventory cost flow whereby the first goods purchased are assumed to be the first goods sold so that the ending inventory consists of the most recently purchased goods.
Fiscal Period: The period of time over which the finances of a company are monitored but generally assumed to be a month, a quarter, or a year e.g. fiscal quarter, fiscal year etc.
Fixed Costs: Cost that remain constant irrespective of sales level.
Fixed Expenses: Expenses that remain constant irrespective of sale level.
Franchisee: The person or company that purchases the right of proprietary business model.
Franchisor: A company that offers to replicate its proprietary business model for others in exchange for an initial fee and a recurring franchise royalty.
GAAP: It is Generally Accepted Accounting Principles or Generally Accepted Accounting Procedures (less common).
Goodwill: Excess amount in the price paid for a business/company over and above the Adjusted Book Value of the tangible assets and liabilities due to name, reputation, customer loyalty, location, product etc.
LIFO: (last-in, first-out) is an inventory cost flow whereby the last goods purchased are assumed to be the first goods sold so that the ending inventory consists of the first goods purchased
Merger –The combining of two companies in which the stockholders of one company exchanges all of their stock for shares of another company. The company that receives the shares and issues their stock is the surviving company.
Mergers and Acquisitions(M&A) – A term that is commonly used for the mergers, acquisitions and the selling of companies. M&A is a commonly used abbreviation for this term.
Non-operating/Non-contributing Asset: An asset unnecessary to the operation of a business enterprise and the generation of its revenues
Owner’s Salary – The salary or wages paid to the owner, including related payroll burden.
Owner’s Total Compensation – Total of an owner’s salary and perquisites, after the compensation of all other owners has been adjusted to market value.
Perquisites – Expenses incurred at the discretion of the owner which are unnecessary to the continued operation of the business.
Partnership: Business ownership by two or more people
Reviewed Statement: A financial statement in which only key accounts have been verified
SDC: (Seller’s Discretionary Cash Flow) – Net Profit Plus Add Backs
Stock Sale – The purchase of a company’s shares of stock and in which the purchaser assumes all of the assets and all of the debt, both tangible and intangible.
Sub(chapter) “S” Corporation: A form of business structure that limits each shareholder’s liability, and profits and losses are reported by shareholders
Taxation: The procedure, cations and systems applied by a government at any level to obtain revenue from individuals, businesses and other organizations.
Transaction Value – The total of all consideration passed at any time between the Buyer and Seller for an ownership interest in a business enterprise and may include, but not limited to, all remuneration for tangible and intangible assets such as furniture, equipment, supplies, inventory, working capital, non-competition agreements, employment and/or consultation agreements, licenses, customer lists, franchise fees, assumed liabilities, stock options, stock or stock redemptions, real estate, leases, royalties, earn-outs and future considerations.
Working Capital: It’s the difference of the current assets and the current liabilities.