SMB Acquisition Glossary

Acquisition Multiple

The price paid for a business as a multiple of its annual earnings.

Asset vs Share Sale

Whether you are buying the business's assets or its legal entity (shares).

BAS Score

Business Attractiveness Score - a 0–10 composite score for evaluating SMB acquisitions.

Debt Service

The total annual principal and interest payments on an acquisition loan.

DSCR

Debt Service Coverage Ratio - measures whether earnings cover loan repayments.

Due Diligence

The investigation and verification of a business's financials, operations, and legal standing before completing an acquisition.

Earnout

A deal structure where part of the purchase price is paid based on future performance.

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortisation.

EBITDA Margin

EBITDA as a percentage of revenue - the primary profitability metric for acquisitions.

ETA

Entrepreneurship Through Acquisition - the practice of buying an existing business rather than founding one.

Goodwill

The premium paid above the tangible asset value of a business.

Information Memorandum

The document a business broker provides to prospective buyers outlining the business for sale.

LTV (Loan-to-Value)

The percentage of the purchase price financed by debt.

Owner Dependency

The degree to which a business relies on its current owner to function.

SDE

Seller's Discretionary Earnings - EBITDA plus owner salary and personal expenses.

Search Fund

A vehicle used by entrepreneurs (searchers) to raise capital, find, acquire, and operate a single business.

Vendor Finance

When the seller provides a loan to help fund the acquisition.

Working Capital

The day-to-day cash needed to operate the business.