The Searcher's Acquisition Glossary
Buying a business comes with its own vocabulary, and most of it gets thrown at you mid-deal when you don't have time to look it up. These are the terms I see trip up first-time buyers most often. Each one is a 2-minute read in plain English, with the math or an example where it helps.
SDESeller's Discretionary Earnings
The total financial benefit to a single full-time owner-operator: net profit plus the owner's salary, perks, and one-time costs added back.
DSCRDebt Service Coverage Ratio
Cash flow divided by annual debt payments. It tells a lender whether the business can pay its own loans, and 1.25x is the SBA floor.
CIMConfidential Information Memorandum
The seller's marketing document for the business: financials, operations, and the story, packaged to make a buyer want to dig in.
LOILetter of Intent
A mostly non-binding offer that sets price, structure, and terms before you spend real money on due diligence.
Seller NoteSeller Note (Seller Financing)
A loan the seller gives you for part of the purchase price, repaid over time instead of paid in cash at close.
EarnoutEarnout
A chunk of the price the seller only collects if the business hits agreed targets after close, used to bridge a valuation gap.
Working Capital PegWorking Capital Peg
The target amount of working capital that must be in the business at close, so you don't inherit an empty till.
Quality of EarningsQuality of Earnings (QoE)
An independent accountant's report that stress-tests the seller's reported earnings to confirm the cash flow is real.
Proof of FundsProof of Funds (POF)
Documentation showing you actually have the cash and financing to close, which brokers often require before sharing a CIM.
Want the full mechanics, not just the definitions?
The blog goes deep on valuation, SBA financing, reading a CIM, and writing an LOI. The free SBA calculator runs the DSCR math on any deal in seconds.