Business Broker Terms

Learn The Lingo

Every industry has its jargon and insider terms, and business brokers are no different.

Here are just twelve of the most common terms used by professionals in the industry and how they apply to you as a business seller or buyer:

1. Buyer Representation Agreement: A contract between a buyer and a business broker outlining the terms and conditions of the broker’s representation in the search for a business to purchase.
2. Seller Representation Agreement: A contract between a seller and a business broker detailing the terms and conditions of the broker’s representation in the sale of a business.
3. Listing Agreement: A contract between a business owner/seller and a business broker detailing the terms and conditions of the broker’s representation in listing and selling the business.
4. Exclusive Listing: A listing agreement that grants the broker exclusive rights to market and sell the business for a specified period, typically excluding the owner from selling the business independently during that time.
5. Business Valuation is the process of determining a business’s fair market value, often based on factors such as financial performance, industry trends, market conditions, and comparable sales.
6. Offering Memorandum (OM): A document prepared by the business broker that contains detailed information about the business for sale, including financials, operations, industry analysis, and other relevant details. It is provided to prospective buyers under confidentiality agreements.
7. Due Diligence is the process of investigating and verifying the financial, legal, operational, and other aspects of a business being considered for purchase. It is typically conducted by the buyer with assistance from the broker.
8. Closing: This is the final stage of the business sale process. It involves the transfer of ownership and the execution of all necessary legal and financial documents. The business broker often facilitates this stage.
9. Earnout: A provision in the purchase agreement where the seller receives additional payments based on the business’s future performance, typically tied to specific financial targets.
10. Escrow: A financial arrangement where a neutral third party holds funds or assets on behalf of the parties involved in a transaction until certain conditions are met, often used in business sale transactions to ensure a smooth transfer of ownership.
11. Letter of Intent (LOI): A non-binding document outlining the proposed terms and conditions of a business sale, including price, financing, and other key terms, serving as a precursor to the formal purchase agreement.
12. Closing Costs: Expenses associated with completing a business sale transaction, such as legal fees, escrow fees, transfer taxes, and other miscellaneous costs, which may be negotiated between the buyer and seller or allocated in the purchase agreement.

Understanding these terms is essential for buyers and sellers who engage with business brokers to navigate the complexities of buying or selling a business.

Close The Deal With Confidence: Dot Your I’s and Cross Your T’s

When selling your business, don’t leave anything to chance. Eric Wayne is an experienced, licensed, and trusted top 5% Florida business broker who can take care of all the details, and you can get back to running your business and living your life.

We offer a FREE customized video tutorial and business analysis to help you understand all the factors determining your valuation, listing, negotiations, closing, and more. Call Eric today at (952) 562-2019.