How to Sell a Business

Selling a Business Guide Image

Glossary of Business Sale Terms

Accommodation - a room, group of rooms, or building in which someone may live or stay – attached to the business. When accommodation is included in the sale it means a new owner has the benefit of living at the business address. There is also the option to rent the accommodation out (if the business has a separate entrance), which could provide another stream of income. This is often an alluring sale trait.

Acquisition Document - is a document sent (either via letter or email) to a list of similar businesses within the business-for-sale’s industry which may be interested in expanding their current business portfolio. (See Approach List)

Adjusted Net/Operating Profit OR EBITDA - or Earnings Before Interest, Taxes, Depreciation and Amortisation is a calculation of a business’s net income – or Net Profit – with non-cash expenses added back to the operating income. It is often a potential buyer’s main reason for interest.

Amortisation - intangible assets, such as patents, goodwill and brand equity.

Approach List - a list for the business for sale, formed of similar businesses within the industry, in a similar location (unless relocatable), with a turnover matching or exceeding the BFS’s own turnover or asking price. This list is used for the Acquisition Email.

Asking Price - the price at which something is offered for sale.

Business Type - The grouping in which the business for sale is categorised, examples include catering, health and beauty, IT, etc.

Commercial Goodwill - Commercial goodwill is a business’s reputation, brand recognition, customer base, customer loyalty, employee satisfaction, among others. It is an intangible asset of a company.

Depreciation - the decrease in value of tangible assets over time, such as machinery and equipment.

EPC (Energy Performance Certificate) - Valid for 10 years, the EPC is a document which estimates a business and its property’s energy usage, taking into account: carbon dioxide emissions; fuel costs; details of the person who carried out the assessment and who to contact for complaints. The better the energy performance rating the more likely the business will appeal to prospective buyers. It is an essential document for the sale process.

Freehold - is the tenure of the property: meaning the owner of the business is also the owner of the premises and the land it stands on. This is a preferred option for an interested buyer who wants to individualise a property and its interior.

Gross Profit - the profit a business attains after deducting the costs related to the production and retailing of its products or services.

Handover Period - a transitional period provided by the current owner of the business to assist with the introduction of the business and its operations.

Home-based– the business type described for those who work at home.

Information Memorandum/Sales Brochure– a document entailing the business overview, premises information, location, history, assets, awards, stock, financial information and any other important details needed for potential parties. The main purpose of an Information Memorandum is to encourage potential investment.

Lease Length – length of contract or agreement/lease details.

Leasehold – a rented/leased property for the business’s operations – possessed by someone who is not the business owner.

Limited Company - a private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested.

Management Structure – either “run by owner” or “under management”. Run by owner is when the business is operated directly under the owner, in house. Under management is the process where the owner has hired management to control the running of operations in house.

Negotiating – a discussion regarding the business’s asking price or other key elements of the sale. If selling through Intelligent Business Transfer, our team of negotiators manage discussions on behalf of the buyer and seller.

Net/Operating Profit - Net operating profit after tax is a company's potential cash earnings if the business was financially sound and had no debt. It is the profit left after all outgoings and expenses are taken.

Non-Disclosure Agreement - Non-disclosure agreement (NDA), also known as confidentiality agreement, is a legally binding document purposed to prevent confidential information being exposed.

Offers – a proposal offered by the potential buyer to the business seller, often relating to the business’s asking price.

Open to Offers - willing to sell the business at a reasonable price, according to the vendor.

Partnership – a recognised agreement by two or more parties to manage and operate a company and distribute its profits.

Profit and Loss (P&L) – a document or statement showcasing a financial summary consisting of the revenues, costs and expenses sustained during a stated period. These records provide data about a business’s capability to generate profit by increasing revenue, reducing costs or both.

Property Value – the market price of the freehold of the property (see: Freehold).

Rates - Business rates are charged on most non-domestic properties (shops, cafes, etc). Some businesses are able to get business rates relief from the local council which reduces the cost.

Relocatable – the ability for a business to be relocated or moved to a new location.

SBR – Small Business Rate Relief - applied to businesses whose property rateable value is less than £15,000. If business owners think they qualify they should contact their local council to apply for small business rate relief.

Sole Trader – a person who is the executive owner of a company, permitted to keep all profits after tax has been paid but who is also liable for all losses.

Stock at Value/Assets at Value – the process of estimating the worth of goods or materials owned by a business or obtainable either within the asking price or for an additional cost.

Tenure – The nature of the sale, see either Freehold, Leasehold, Relocatable or Home-based.

Timescale - A business owner’s estimated or desired timeframe for the length of the business sale process.

Trading Entity – the type of trading account belonging to the business. See: ‘Limited Company’, ‘Partnership’ or ‘Sole Trader’.

Turnover – the full amount of money taken by a company in a particular period.

Valuation – The valuation, referring to a business sale, is a systematic assessment and determination of the true worth of a business. The valuation takes into account the company’s profitability, revenue, cash flow, earnings growth, growth prospects, brand recognition, intellectual property, all assets, stock and liabilities. The value can also be affected by current market conditions.

Viewing – Viewings allow a potential buyer to meet the business owner/see the business premises and get a feel for the company’s operations.