Glossary | Commonly Used M&A Terminology

Playbook Corporate Advisory, Inc.  

Glossary - Commonly Used Terms

Alphabetical Order

A
Accounts Receivable: Money owed to the company from completed work orders.
Angel Investors: Private individuals that provide funding to businesses at startup or early in their lifecycle.
Assets: Items owned by the company, such as cash, accounts receivable, vehicles, and deposits.
Accumulated Depreciation: Reduction in value of an asset over time due to wear and tear.
Asking Price: The price a seller is asking for the business. Typically, the average sales price is 85-90% of the initial asking price.
Attorney: An M&A attorney is crucial for navigating legal complexities in business transactions.

B
Balance Sheet: Financial statement showing assets, liabilities, and owner’s equity on a specific date.
BizBuySell, BizQuest: Third-party websites for business sellers and buyers.
Blog: A platform for sharing news and information on buying or selling a business.
Book Value: Also known as net worth. Reflects the company's actual value accounting for assets and liabilities.
Building Type: Categories of properties such as commercial, retail, industrial, or residential.
Business Broker: A professional who assists in buying or selling privately held businesses.

C
Capital Stock: Amount paid by shareholders for their ownership stake in a business.
Cash Flow: Net amount of cash being transferred into and out of a business.
Cash Flow Valuation: Valuation method based on a multiple of cash flow, often using Seller Discretionary Earnings (SDE).
Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold by a company.
Collateral: Assets pledged as security for a loan.
Current Assets/Liabilities: Assets that can be converted into cash within a year/liabilities due within a year.

D
Debt: An amount owed to another party.
Debt to Equity Ratio: Measures a company's financial leverage.
Depreciation: Allocation of the cost of an asset over its useful life.
Discounted Cash Flow (DCF): A valuation method using projected future cash flows, adjusted to get their present value.
Dividends: Payments made by a corporation to its shareholders.

E
Equity: The value of ownership interest in the company, calculated as total assets minus total liabilities.
Equity Financing: Raising capital through the sale of shares.

F
Fair Market Value: An estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would likely pay.
Free Cash Flow: Cash a company generates after accounting for cash outflows to support operations and maintain capital assets.
Fiscal Year: A year as reckoned for taxing or accounting purposes, not necessarily aligning with the calendar year.

G
Goodwill: An intangible asset that arises when a buyer acquires an existing business.
Gross Margin/Profit: Revenue minus cost of goods sold.

H - I
Income Statement: A financial statement showing the company's revenue and expenses over a specific period.

J - K
Jim Peddle: President of Playbook Advisory.

L
Lease Expiration: The termination date of a lease agreement.
Liabilities: Financial obligations of a company.

M
Market Rent: Typical cost of renting space in the open market.
Multiple Listing Sheet: A document listing various businesses for sale.

N
Net Income: Total revenue minus total expenses.
Non-Compete Agreement: A contract where the seller agrees not to start a similar trade in competition against the buyer.

O
Owner's Equity: The residual interest in the assets of the holder after deducting all liabilities.

P
Part-Time Employees: Employees who work fewer hours than full-time employees and receive different benefits.

Q - R
Recourse Loan: A loan where the borrower is personally liable if the proceeds from the sale of the collateral are insufficient to pay off the loan.

S
SBA Financing: Loans supported by the Small Business Administration, offering guarantees to lenders.
Seller Financing: A transaction where the seller provides a loan to the buyer.

T
Tax Returns: Official documents filed with taxing authorities reporting income, expenses, and other pertinent tax information.
Terms and Options: Describes the specifics of a lease, including the length of the term and renewal options.

U - V
Variable Costs: Costs that vary depending on a company's production volume.

W

Warren Buffet: Chairman and Largest Shareholder Berkshire Hathaway -$BRKA
Working Capital: Current assets minus current liabilities, indicating the short-term liquidity of a company.

X - Y - Z
No specific terms under these letters.