Buyer's glossary
The words that decide whether you overpay.
Every term below appears in a broker's listing, a CIM or a lender's term sheet, and every one of them moves the price. Definitions in plain English, with the source named wherever a number is involved — written for someone buying their first business, not for an accountant.
Seller's Discretionary Earnings (SDE)
SDE is what a small business earns for one full-time owner-operator: net profit before tax, plus that owner's pay and benefits, plus interest, depreciation and amortisation, plus expenses that will not exist after the sale.
Add-backs
Add-backs are expenses a seller adds back to profit on the argument that they will not exist for the new owner.
Quality of Earnings (QoE)
A Quality of Earnings report is an accountant's deep check that the profit a seller reports is real, repeatable and properly earned.
Debt Service Coverage Ratio (DSCR)
DSCR is the cash a business produces divided by the loan payments it owes.
Confidential Information Memorandum (CIM)
A CIM is the packet a broker sends once you have signed an NDA: the story of the business, its numbers, its customers and the reason for selling.
Letter of Intent (LOI)
A letter of intent sets out the deal you and the seller believe you have agreed: price, structure, what is included, and how long you get to verify it.
Asset sale vs stock sale
In an asset sale you buy the things the business is made of and leave most of its history behind.
SBA 7(a) loan (business acquisition)
The SBA 7(a) programme is how most first-time buyers finance a Main Street purchase.
Lease assignment and landlord consent
If the business cannot move, its lease is worth as much as its earnings.
UCC-1 lien
A UCC-1 is a one-page public filing that tells the world a lender has a security interest in a business's assets.
Seller note (seller financing)
A seller note is the portion of the purchase price the seller agrees to be paid later, with interest.
FDD Item 19 (financial performance representations)
Item 19 of a Franchise Disclosure Document is the only place a franchisor may state what its outlets earn — and including it is optional.
Earnout
An earnout is part of the price paid later, only if the business hits agreed numbers.
Working capital (and the peg)
Working capital is the cash tied up in running the business — stock on the shelves, invoices customers have not paid, bills you owe.
Customer concentration
Customer concentration is the share of revenue that comes from your largest customers.
Non-compete (seller's covenant)
A non-compete stops the seller from rebuilding the same business next door with the relationships you just paid for.
Escrow and holdback
An escrow or holdback keeps part of the price back after closing, so that if what you were told turns out to be untrue there is money still on the table.
Working out how much checking your deal needs? Read pre-screen vs Quality of Earnings vs full due diligence, or what a broker’s opinion of value leaves out.
More terms are being added. Missing one you hit in a real deal? Tell us and it goes on the list.
Last updated: 2026-09-22