Glossary - Business Brokering and Deal Terms
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A
Asset Liquidation Sale
A sale of a business's assets only, usually because the business is unprofitable or barely profitable. The seller may believe the business has no value beyond its physical assets — or may not know a broker can often sell the business itself for more than asset value alone.
Assets sold in this type of sale are typically physical. Any intangible assets listed are usually worth little, since they weren't generating profit.
Asset List
An itemized list of a business's physical assets — machines, vehicles, tools, molds, furniture, fixtures and equipment (FF&E) — usually with columns for make, model, description, value, and notes. Value means current market value or replacement value for an item of similar age and condition.
The asset list can also include hard-to-value items like domain names, trademarks, and other intellectual property. It does not include inventory — inventory is tracked separately because it changes too often for a static list.
Asset Sale
One of two ways to structure the sale of a business — the other is a Stock Sale. Not to be confused with an Asset Liquidation Sale.
Most Main Street business transactions are asset sales, because small-business buyers generally don't want to assume the seller's existing liabilities, known or unknown. Stock sales are less common in small deals: they're more complex, cost more in legal and professional fees, and any tax savings for the seller tend to get eaten up by those extra costs. Exceptions exist — for example, a business grandfathered into a valuable zoning variance may call for a stock sale so the buyer keeps that benefit.
Asset sale vs. stock sale, at a glance:
- Business size: Asset sales dominate smaller deals; stock sales show up more in larger ones.
- Tax treatment: Differs for both buyer and seller — often favors the seller in a stock sale, the buyer in an asset sale.
- Liabilities: Asset sale — buyer picks and chooses what to assume. Stock sale — buyer typically inherits the entity's full liability history.
- Legal fees: Higher for stock sales.
- Typical use case: Asset sale — most Main Street deals. Stock sale — deals where a contract, license, or zoning benefit needs to transfer intact.
A hybrid option exists — a "deemed asset sale" under IRC 338(h)(10) — but it's a sophisticated structure mainly used on larger deals with significant physical assets.
B
Bolt-On
See Platform. A smaller company acquired to complement and grow a larger "platform" business, typically by a private equity firm building scale in a niche.
Breakup Fee
A fee a party pays for backing out of a signed agreement. In M&A, this is typically 1-3% of the contract price, charged to a seller who backs out after signing, to compensate the buyer for lost time and expense. It can also run the other way — a buyer backing out pays the seller — in which case it's called a reverse breakup fee (or reverse termination fee).
Bulge Bracket
The tier of businesses generally over $1 billion in revenue, where M&A activity is handled by the largest investment banks. Some sources set the cutoff differently, or use EBITDA instead of revenue to define the tier.
See Lower Middle Market for the full market-tier breakdown.
Business Broker
An intermediary who helps people buy and sell businesses — typically businesses in the Main Street range (under roughly $5M in revenue).
Buyer Types (Acquirers)
Business buyers generally fall into four types: Financial Buyer, Strategic Buyer, Sophisticated Individual, and Common Individual. Many real buyers are hybrids of these.
What distinguishes them:
- Background and approach: Financial buyers evaluate deals on ROI and portfolio fit; strategic buyers evaluate deals on how well they extend an existing business; individual buyers range from experienced operators to first-time owners.
- Deal volume: Financial and strategic buyers typically do more deals; individual buyers typically buy once.
- Typical deal size: Varies widely by buyer type, usually described in EBITDA terms.
- Time horizon: Financial buyers usually plan an exit; strategic and individual buyers usually plan to hold and run.
- Source of funds: Financial buyers draw on institutional capital; individuals draw on savings, SBA loans, or seller financing.
- Industry expertise: Strategic buyers usually bring deep industry knowledge; financial buyers often bring management talent instead; individual buyers vary.
- Typical intermediary used: Varies by buyer sophistication and deal size — business brokers, M&A advisors, or investment bankers.
Search fund buyers are a notable case: the searcher can end up with roughly 25% total ownership (about 8⅓% at close, 8⅓% over their tenure, 8⅓% tied to performance) — a much larger stake than a private equity operator typically holds (often single digits).
See Financial Buyer, Strategic Buyer, and Search Fund for more detail on individual buyer types.
C
Carve Out
In larger M&A, separating a business unit, subsidiary, or product line from its parent company before or during a sale. In smaller business transactions, it usually just means designating part of the business — a website, a product line, certain employees — as not included in the sale.
Certified Business Intermediary (CBI)
An advanced certification for business brokers, awarded by the International Business Brokers Association (IBBA).
Certified Exit Planning Advisor (CEPA)
See Exit Planning Institute. The credential awarded by the Exit Planning Institute to certified exit planning professionals — often CPAs, wealth advisors, estate planners, business consultants, or M&A professionals.
Confidential Information Memorandum (CIM)
A detailed profile of a business, given to potential buyers — typically after they've signed an NDA. It's the core marketing document in a business sale.
Why it matters: A strong CIM does the heavy lifting of pre-qualifying serious buyers and setting accurate expectations before anyone wastes time on a call.
A CIM typically covers: broker introduction, company overview, financial overview, products/services, ownership and key executives, employees and org structure, marketing and sales, manufacturing and logistics, customers and markets, industry and competition, key differentiators, legal issues and risks, financial statements and projections, growth opportunities, and a summary of the offer with next steps.
Customer Concentration
A business is at a disadvantage when a large share of its revenue comes from a small number of customers. Retail businesses (restaurants, shops, stores) typically don't have this problem since they serve many customers; some professional service firms do (specialized engineering or consulting) while others don't (tax prep, insurance).
Why it matters: The worst case is concentration of one — a single customer accounts for most or all revenue. That simplifies operations but creates serious risk if that relationship ends. A buyer will scrutinize this closely; a business built around one or two accounts is harder to sell and often commands a lower price. (Example: businesses built on Amazon's DSP delivery program aren't contractually barred from serving other customers, but most don't — and Amazon can cancel the agreement at any time without cause.)
D
Deal Structure
The terms that define how a business sale is paid for and transferred — cash, debt, equity/ownership, corporate structure, and transition arrangements.
Business acquisitions are rarely simple all-cash deals at closing. Most combine a down payment with future payments — regular loan payments, seller financing, or earnouts tied to milestones. Ownership can be a variable too: smaller deals are usually bought outright, but in larger deals the seller may take equity in the buyer's company as part of the price.
Due Diligence
The investigation process a buyer (and often a lender) runs after a purchase agreement is signed, digging into financial, operational, and legal records in more depth than what was shared earlier in the deal. For small businesses this can take days to weeks; for larger deals, months.
Why it matters: In many states, either party can walk away during due diligence without cause and recover their deposit, if one exists — which makes this the stage where deals most often fall apart. Sellers should expect the process and have documents organized before it starts; a seller can also do due diligence on a buyer, which matters most when the deal involves seller financing or an earnout.
Larger M&A deals typically run due diligence in three phases, usually sequential to control professional fees: commercial (buyer), financial (buyer's CPA/accounting team), and legal (buyer's attorney). Each phase can take a month or more. Buyers and sellers on both sides benefit from working off a due diligence checklist.
Due Diligence Release
The point in a deal when the buyer signs a release confirming due diligence is complete and that they won't back out over due diligence findings without forfeiting their deposit.
Why it matters: A due diligence release narrows, but doesn't eliminate, a buyer's ability to walk away — they can still exit over unmet closing conditions, items the seller concealed, or actions the seller takes after the release is signed.
E
Earnest Money Deposit
Money a buyer places in escrow, in good faith, before starting due diligence. A larger deposit (as a percentage of price) signals a more serious buyer.
What happens to it:
- Returned to the buyer if due diligence turns up a problem, or by mutual agreement to cancel.
- Applied to the purchase price if the deal closes.
- Kept by the seller if the buyer backs out in violation of the purchase agreement.
The escrow company can't release the money to either side without mutual agreement — if the parties can't agree, they have to resolve it legally, and escrow typically hands the funds to the court and steps back. Because recovering a disputed deposit can be slow and expensive, some attorneys advise buyers against agreeing to earnest money at all — advice more common in larger M&A deals than in small business brokerage.
Earnest Money Goes Hard
The point when an earnest money deposit stops being refundable — typically once the buyer signs the due diligence release. Sometimes staged, with a portion becoming non-refundable at a milestone during due diligence, as a negotiation concession to the seller.
Earnout
A structure where part of the purchase price is paid after closing, contingent on the business hitting specific milestones. Unlike seller financing, which requires fixed monthly payments regardless of performance, an earnout only pays out under agreed conditions — which shifts some risk from buyer to seller.
Why it matters: Earnouts let a buyer bridge a gap in confidence about the business's future performance without walking away from the deal — useful when there's a real risk the seller can help manage (like customer concentration) but can't fully guarantee.
Earnouts are typically paid annually over two to three years; buyers rarely accept terms stretching past three years, since the point is a short, defined transition of risk. Example: a buyer pays 25% of price at closing and again at each of the first three anniversaries, contingent on the top customer's orders staying above 80% of the pre-sale average.
Contract language needs to spell out every what-if scenario — a buyer-caused drop in orders, an economy-caused drop, normal year-to-year fluctuation. A business broker's role is to make sure both sides think through these scenarios and negotiate clear terms before attorneys formalize the language.
Employee Retention Bonus
An incentive paid to a key employee to keep them from leaving during a business sale. Used when the buyer needs that employee's knowledge through the transition — until the buyer learns the operations or finds a replacement. Example: a bonus paid to a key employee six months after the new owner takes over.
Exit Planning
The process of preparing a business owner for a transition out of the business — whether that's a sale, a merger, a transfer to family, a liquidation, or a wind-down.
Why it matters: Most exit planning is really about building value long before the exit itself — clean bookkeeping, disciplined financial reporting, tight processes, and a management team that isn't just the owner is what makes a business easier (and more valuable) to exit, and it also makes the business easier to run in the meantime.
A good exit planning framework addresses every part of the business, tackles the biggest risks first, then the easy wins, and sets a regular cadence — often asking "grow or exit?" every quarter.
Exit Planning Institute (EPI)
An organization supporting exit planning professionals through events, education, training, and the Certified Exit Planning Advisor (CEPA) certification. CEPA holders are often CPAs, wealth advisors, estate planners, business consultants, or M&A professionals.
F
Family Fund
Also called a family office — a buyer type backed by a successful family-owned business that has set up a fund to acquire other companies for growth and generational wealth-building. It may deploy family members directly or hire experienced M&A professionals to find, buy, and sometimes run acquisitions.
Compared to private equity buyers, family funds typically do fewer deals and hold longer, often pursuing strategic or diversification goals rather than a fixed exit timeline.
See Buyer Types for how this compares to other acquirer types.
Financial Buyer
A buyer that evaluates acquisitions primarily on financial return — ROI, the ability to roll up multiple businesses in an industry, cost synergies across a portfolio, and a clear future exit. Private equity groups and large family funds fall into this category.
Financial buyers often look for a strong "platform" company to anchor a portfolio, then add smaller "bolt-on" acquisitions around it. They typically don't bring deep industry expertise in-house, but they do bring a network of experienced executives to place into acquired companies.
See Buyer Types for how this compares to other acquirer types.
Fundless Sponsor
Also called an Independent Sponsor. A buyer model built around an individual — often a former private equity executive — who is actively looking to acquire a business but hasn't secured committed funding yet. This person plans to take an ownership stake but won't run the business day-to-day after closing.
This creates a chicken-and-egg problem: investors won't commit funds without full due diligence, but the sponsor can't show the seller committed funds before due diligence happens — which tends to slow deals down and add uncertainty for the seller. If a deal does close, funding often comes as mezzanine debt (expensive, subordinated debt), and the acquired company may owe the sponsor ongoing fees, commonly 3.5-7.5% of EBITDA.
Why it matters: A seller weighing an offer from a fundless sponsor should know the funding isn't locked in the way it would be with a traditional buyer — that uncertainty is worth factoring into how seriously to treat the offer.
See Buyer Types for how this compares to other acquirer types.
Furniture, Fixtures and Equipment (FF&E)
Tangible, movable business assets not permanently attached to a building — vehicles, office furniture, partitions, computers, machinery. It excludes consumables like food, paper products, and office supplies.
FF&E is a subset of a broader category, Property, Plant and Equipment (PP&E), which also includes buildings, permanent fixtures, and land. A business that owns its real estate tends to talk about PP&E; one that doesn't (with real estate held separately) tends to talk about FF&E.
All of these assets share a few traits: they're physical, they have a useful life of more than a year, they show up on the balance sheet, and businesses depreciate them over time for tax purposes rather than expensing the full cost in the purchase year. Tangible assets are depreciated; intangible assets are amortized.
Why it matters: Buyers view asset-heavy and asset-light businesses differently — lenders favor asset-heavy businesses because equipment is collateral, while some investors prefer asset-light businesses for a better return on invested capital. Knowing which camp your business falls into shapes how it should be positioned to buyers.
I
Independent Sponsor
See Fundless Sponsor — the two terms describe the same buyer model.
Indication of Interest (IOI)
A non-binding document a prospective buyer sends a seller early on, to gauge whether both sides are close on price and terms. It's typically the first of three documents in a deal's progression — IOI, then Letter of Intent, then purchase agreement.
An IOI usually includes a price range, proposed deal structure, seller transition plans, and a due diligence outline. It's most useful when there's no advertised price to anchor expectations; on smaller deals with a listed price, buyers typically skip straight to a purchase agreement.
Intermediary
A general term for anyone who helps buyers and sellers complete a business or real estate transaction — business brokers, M&A advisors, and investment bankers are all intermediaries, differentiated mainly by the size of deal they handle.
International Business Brokers Association (IBBA)
The world's largest trade organization for business intermediaries. It supports and educates business brokers and awards the Certified Business Intermediary (CBI) certification along with related courses and seminars.
The IBBA and the M&A Source are both specialty sections of the International Association of Business Intermediaries (IABI), a Texas non-profit, and hold back-to-back annual conferences in the same location. Where the IBBA focuses on business brokers, the M&A Source focuses on M&A advisors, awarding the CM&AP and M&AMI certifications.
Inventory List
An itemized list of a business's inventory — raw materials, work-in-process, and finished goods — with description and value, typically valued at the seller's cost (materials plus labor for anything in process or finished).
Inventory is almost always included in a sale, but not always in the advertised price — the list may not be finalized at listing, or may change by closing. The purchase agreement spells out inventory's value, whether it's included in the contract price, and whether the price adjusts at closing based on the final count.
Sellers are often better off listing the business without inventory baked into the price (which makes the multiple look more competitive) and providing a separate inventory estimate, valued at landed cost — including shipping and customs.
Investment Banker
A financial professional handling the largest M&A deals, above what business brokers and M&A advisors typically serve. By revenue tier: Middle Market ($50M-$500M) is served by M&A advisors and boutique investment bankers; Upper Middle Market ($500M-$1B) by investment bankers; above $1B (Bulge Bracket) by the largest investment banks.
See Lower Middle Market for the full tier breakdown.
L
Letter of Intent (LOI)
A document a buyer sends a seller to move a deal forward — the second of three documents in a deal's progression, after the Indication of Interest and before the purchase agreement. It narrows the IOI's price range down to a specific offer price and terms.
Signing an LOI signals the buyer intends to close at those terms, barring anything that turns up in due diligence. Sellers are typically expected to take the listing off the market once the LOI is signed, then move into due diligence, which can take months. On smaller deals, sellers sometimes skip the LOI entirely and go straight to a purchase agreement backed by an earnest money deposit.
Lower Middle Market (LMM)
A tier of businesses by size — definitions vary by source, and some use EBITDA instead of revenue. A common breakdown by revenue:
- Main Street: under $5M — served by business brokers
- Lower Middle Market: $5M-$50M — served by M&A advisors
- Middle Market: $50M-$500M — served by M&A advisors and boutique investment bankers
- Upper Middle Market: $500M-$1B — served by investment bankers
- Bulge Bracket: above $1B — served by the largest investment banks
There's no hard line between tiers — some high-end business brokers work with businesses over $10M in revenue, and some M&A advisors take on sub-$5M-revenue businesses if EBITDA is strong.
M
M&A Advisor
An intermediary who helps companies buy, sell, or merge with other companies — typically handling larger deals than a business broker, in the Lower Middle Market and above.
M&A Source
A trade organization for M&A advisors and other professionals focused on the Lower Middle Market (LMM).
Main Street
The tier of businesses typically under $5 million in revenue, served by business brokers. Some sources set the cutoff differently, or use EBITDA instead of revenue.
See Lower Middle Market for the full tier breakdown.
Mergers and Acquisitions (M&A)
The process of buying, combining, or merging companies. A transaction can be complete or partial, structured as an asset sale or stock sale, friendly or hostile, and between companies of any relative size.
Middle Market
The tier of businesses typically in the $50M-$500M revenue range, served by M&A advisors and investment bankers. Some sources set the cutoff differently, or use EBITDA instead of revenue.
See Lower Middle Market for the full tier breakdown.
P
Platform
A larger, foundational business acquired by a private equity firm as the base for building out a niche — with smaller "bolt-on" acquisitions added later to grow scale and market share.
Private Equity Group (PEG or PE Firms)
See the full entry — including the buyer-type comparison table — in the Financing category file (glossary_tightened_financing_general.md). Kept here as a pointer only, to avoid a duplicate entry across categories.
R
Retrade
A buyer's attempt to change the terms of a signed LOI during due diligence — most often a lowered offer price after finding something negative. Retrading loses deals. Sellers reduce the risk by being upfront and thorough from the start; experienced buyers generally avoid retrading over minor issues, since it's understood to be a bad experience for the seller.
S
Search Fund
A buyer model where an individual — often a recent MBA graduate — raises money from committed investors to fund a search (up to a couple of years, with a modest salary) for a business to acquire and personally run. Because the investment in a specific target isn't committed until one is found, it's technically a fundless model — but unlike a Fundless Sponsor, the search fund entrepreneur plans to actively run the acquired business, not just hold an ownership stake.
The model traces back to Stanford professor H. Irving Grousbeck, who introduced it while lecturing at Harvard Business School in 1984; both schools remain active in supporting and researching it, and investors are often business school alumni.
A successful searcher can end up with roughly 25% total ownership — about 8⅓% at close, 8⅓% over their tenure, and 8⅓% tied to performance — well above what a typical private equity operator holds (often single digits).
See Buyer Types for how this compares to other acquirer types.
Second Bite of the Apple
A deal structure where the seller takes equity in the buyer's company, giving the seller a chance to benefit again if the buyer's company has its own exit down the road.
Silver Tsunami
A term describing the aging of the population — in the U.S., driven largely by baby boomers (born 1946-1964), who make up about a third of the population. Because boomers own an estimated half to two-thirds of small businesses in the U.S., many predicted a wave of business sales as they retire.
That prediction has been complicated by the Great Recession and the pandemic; the expected single wave now looks more like a series of smaller, more manageable ones.
Stock Sale
The other of the two main ways to structure a business sale, alongside an Asset Sale. See Asset Sale for the full comparison.
Stopped Business
A business for sale that has permanently or temporarily ceased operating. Selling one is closer to an Asset Liquidation Sale than the sale of a going concern.
Strategic Buyer
A buyer evaluating an acquisition mainly for how it grows or strengthens an existing business — market share, competitive advantage, product or service expansion, vertical integration, or operational efficiency. Strategic buyers range from large industrial companies to professional services firms. They often use their own cash, but may also use financing or be backed by a private equity firm.
See Buyer Types for how this compares to other acquirer types.
Success Fee
A fee earned only when a deal closes successfully — the sale of a business or a real estate transaction. Related to the term "100% commission."
U
Upper Middle Market
The tier of businesses typically in the $500M-$1B revenue range, served by investment bankers. See Lower Middle Market for the full tier breakdown.