All the business sale terms you need to know
If you’re searching for businesses for sale in Sydney, or if you’re venturing down the road to selling a business for the first time; then there may be business sale terms you haven’t come across before. But no need to feel overwhelmed, Core Business Brokers is here to help.
Introducing you to your business glossary. In this blog we’ll outline the key terms you’re likely to encounter when buying or selling a business here in Sydney – and what they mean! Let’s get started.
Common Business Sale Terms
- Due Diligence
Due diligence is the process for a Buyer to check that the information provided to them on a business and on which an offer was made, is correct and can be relied on. It is also an opportunity to learn the ins and outs of the business you’re about to buy, including any relevant fact-checking. This includes operations, finances and more.
- Gross Profit
This is the profit calculated by deducting the cost of goods from the income derived from the sale of those goods. In a manufacturing business the cost of goods would include the raw materials, labour cost and some of the manufacturing expenses. In a service business there is no gross profit calculation as the expenses to earn the income are all shown under expenses headings.
- Net Profit
Typically, this is the total profit calculated before or after tax, for the business.
Tying into profit, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. Typically this is shown as the expenses for depreciation and amortisation are adjustments in the accounts (shown as expenses) but do not affect the cash flow.
A monetary figure placed on the intangible value of your business. Reputation, for example, is directly tied to Goodwill.
Not to be confused with the term below, “appraisal”; a business valuation is not required prior to selling a business as a going concern. Instead, it’s used when banking matters or court proceedings require a more detailed financial picture of the business. A valuation needs to be done by a registered valuer.
An appraisal is conducted before listing the business for sale. It’s a service we include right here at Core Business Brokers, by taking into account many factors such as current market conditions, the history of success & profitability, future profit forecasts, goodwill, stock, assets, SWOT analysis and much more.
- SWOT analysis
This stands for “strengths, weaknesses, opportunities, threats” and is a great tool when analysing a business during the due diligence phase (or if you’re a current business owner and want to improve your business!)
- MOU (memorandum of understanding)
While this isn’t a necessary document in all cases, it outlines the agreed terms and conditions of a business sale. The MOU acts as an assistant for the contract of sale to be drafted more efficiently. This can lower costs for both the buyer and seller, as it lessens the ‘back and forth’ between parties when the contract is being drawn up, thus reducing legal costs. Another term often used is a “Term Sheet”.
- CDA / NDA (confidential disclosure agreement / non-disclosure agreement)
Whether you call it a CDA or an NDA, these documents are the same and provide security when showing your business to prospective buyers. It essentially prohibits interested parties from sharing the information learned about your business with external parties. Think of it like a “secrecy agreement”.
The moment we’ve all been working towards is here. Your settlement is the end of your business sale or business purchase journey. This is where the legal transfer of ownership occurs and the buyer hands over the cash settlement agreed to, often called “The keys are exchanged” and all matters are finalised. Onto this new and exciting chapter.
Considering buying or selling a business?
If you’re considering buying a business in Sydney, greater Sydney or in regional NSW, contact Core Business Brokers today. Are you working towards the next chapter and are looking to sell your business? Chat with the team at Core Business Brokers. Contact the Core team by giving them a call on (02) 9413 2977. Alternatively, email [email protected] or [email protected] to begin your business sale or purchase journey. Alternatively, follow us on Facebook to stay up to date on latest listings and featured articles.