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Agreement In Principle","This is also known as a "letter
of intent" and is used by two parties to outline the price of a business and
some of the larger terms of the transfer of the business. It is not a
contract; therefore it is not binding and will be subject to more
negotiation.
Definition
Amortization","Spreading out payments over a period of
time so that a debt is gradually paid off.
Annual Receipts","Gross sales in dollars for last full fiscal
year.
Asking Price","The price the seller is asking for the business and/or
property.
Assets","Everything owned by a company, including items
that are owned. Current assets include cash, investments, money due,
materials and inventories. Fixed assets include land, buildings and
machinery. Intangible assets include goodwill.
Asset Stripping","Buyers who will sell off only some
(not all) of an acquired business with the intention of recouping their
initial investment while retaining ownership of the rest of the acquired
business.
Auction","Where bids are accepted for a business within
a specific time period.
Audited Financial Statements – These are the financial
statements of a business, showing the business's financial position and the
results of its operations. These are prepared by an accountant independent
of the business owner and in accordance with general accounting principles.
Business Broker","Someone dedicated to serving clients
who want to buy or sell a business.
Business Plan","A written document which describes the
business, its objectives, its strategies, the market in which it operates
and its financial forecasts.
Balance Sheet","A statement presenting the status of the
business's assets, liabilities and equity on a given date.
Business Transfer Agent","The same as a business broker","someone dedicated to serving clients who want to buy or sell a business.
Book Value/ Net Worth","The accounting value of a
business or an asset according to financial records.
Capital","The total sum that an individual has invested
in a business or the business's net worth.
Cash Flow","Dollars available to business owner from operations of
company (business earnings before interest, taxes, depreciation and owners
compensation assuming it's an owner operated business).
Commission","Someone's fee as a percentage of the sale.
Down payment","The amount of cash a qualified buyer needs to
qualify for seller financing.
Due Diligence","A thorough investigation into the
claimed performance of a business, led by the potential buyer. It involves a
verification of all claims made by the business owner.
Equity","The net value of a business after all debts,
claims and assets have been liquidated.
Factoring","A process whereby a company pays the
business a proportion of its debts in advance in return for payment later
on.
Fiscal Year or Tax Year","The annual accounting period.
FF&E","The business's Furniture Fixtures &
Equipment.
Franchise","An agreement where the franchisor (a primary
company) provides a market tested business package to a local business (the
franchisee). The latter then operates under the franchisor's trade name,
marketing goods according to an agreed contract.
Goodwill","The part of the price, not accounted for by
the net value of tangible assets that covers extra qualities of the business
such as the name, reputations and customer loyalty.
Intangible Asset","A non-physical, notable asset of the
business, e.g. copyright.
Intermediary","A middleman that acts for the interests
of either a buyer or seller of a business","such as an agent, broker or
advisor.
Inventory","Stock on hand for resale or used for the
sale of goods. All goods ready for sale, goods already on
the production line and raw material in the business's possession.
Lease","An agreement for the rent of a particular,
tangible asset.
Liabilities","Any outstanding claims against a business,
including accounts and salaries, tax, mortgage bonds, bank loans etc.
Liquid Assets","Assets like receivables and saving
accounts that are easily convertible into cash, as well as cash itself.
M & A firm","A professional mergers and acquisitions
advisor that usually deals with larger businesses for sale.
Mark-up","The difference between wholesale and retail
price.
Memorandum","A document that outlines the description of
the business, including its history, products, services, mission statement,
competitive analysis and financial statements. It can also be used as a
document to outline a plan for a future business.
Monthly Payroll","Payments to employees.
Net Income","For any given period, the remainder of
total revenue once the total expenses have been subtracted.
Net Profit","Gross profit minus operating expenses.
Obsolescence","The loss of value of a fixed asset owing
to it being replaced by an improved asset.
Overhead","The general expenses of a business as
distinct from the direct cost of manufacturing a product or offering a
service.
Representations and Warranties","The declarations of the
seller stating the facts for the business (e.g. that all contracts have been
disclosed to the purchaser).
Rent","Payment made to a landlord monthly.
Residual Value","The estimated price that a tangible
asset would be worth at resale.
Revenue/ Sales","A business's gross income.
SAV","Stock at valuation. This is the value of any stock
a business has at the time of valuation.
Seller Financing","The buyer promises to pay the seller
of the business (once a down payment is made) certain sums over a specified
period of time. In this way, the seller lends to the buyer to facilitate the
purchase.
SIC Codes","This stands for Standard Industrial
Classifications categorising and indexing business types and sectors.
Solvency","A business's ability to meet its long term
financial obligations.
Subsidiary Operations","Business operations that are
separately accounted for in financial statements.
Taxable Income","Gross income minus exemptions and
personal deductions.
Turnover","The amount of money a company makes in sales.
Venture Capitalist","A person or firm investing funds in
a business venture, expecting financial returns.
Working Capital","Readily accessible capital required
for the day to day running of a business. In accounting reports this is
calculated as the current assets minus current liabilities.
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