If you’re new to the online business world, you may encounter unfamiliar words and phrases. Here’s a breakdown of some key terms:
A
APA (Asset Purchase Agreement)
A legally binding contract between a seller and a buyer. It outlines the terms and conditions of the asset sale, ensuring a smooth transaction and minimizing liability issues.
Add Backs
Expenses that are added back to the profits. For example, non-operational expenses like travel costs for business conferences are not considered operational expenses.
Asset Sale
The sale of business assets without changing the ownership structure of the parent company. This can include domain names, customer lists, and tools. Asset sales are often done to increase cash flow and liquidation.
B
Balance Sheet
A statement that reflects a business’s assets, liabilities, expenditures, and equity, providing a snapshot of its financial condition.
Business Appraisal
An estimated value of a business, used as a temporary valuation and lacking legal standing.
Bill of Sale
A written instrument issued by a seller to the buyer, serving as proof of ownership transfer, whether it’s assets or money.
C
Cash Flow
The net operating income minus expenditures. It’s calculated by deducting expenses such as salaries, interest, taxes, and subscriptions from the net revenue.
Closing Statement
An official statement issued once all necessary documents are signed, the buyer has taken charge of the new business, and the money has been distributed to the seller.
Copyright
An exclusive privilege granted to individuals or businesses, protecting the original creators of various forms of work such as content, literature, art, performance, sound, film, or music.
Commission
An agreed-upon fee paid to a broker for facilitating the sale of a business. It’s often a percentage of the total asset sale value.
Covenant
A promise made in an agreement, such as a covenant between buyer and seller not to disclose the deal price to the public.
D
Due Diligence
A systematic scrutiny conducted by a potential buyer to verify the business’s financials, records, user base, and other relevant factors. Due diligence is typically performed before listing the business and after signing the Letter of Intent (LOI) but before signing the Asset Purchase Agreement (APA).
Deal Flow
The number of deals a broker handles at any given time. It varies depending on the size and capability of the broker.
E
Earnest Money Deposit
A refundable token payment made by a potential buyer to demonstrate their serious intent to negotiate.
Escrow
A neutral third party that holds financial instruments, money, or assets on behalf of the buyer and seller until the transaction is completed.
Exclusivity
A contract granting a broker exclusive rights to receive a commission when the business is sold within a specific period. The seller is legally bound not to list their business with another broker during this exclusivity period.
F
FBA (Fulfilled by Amazon)
An arrangement where Amazon handles inventory storage, packing, delivery, and returns on behalf of the seller. The seller keeps their items in Amazon’s warehouse.
H
Hours to Manage
The number of hours required per week to effectively manage an online business. It’s an important factor in determining business valuation.
L
Listing Price
The price at which your online business is listed on our marketplace for sale.
LOI (Letter of Intent)
An agreement between the buyer and seller that outlines the terms, conditions, and price for the business sale. It serves as a roadmap for both parties involved.
N
NDA (Non-Disclosure Agreement)
A legal contract between two parties that ensures confidentiality of business information shared between them. It prevents the disclosure of sensitive information to competitors.
Non-Compete Agreement
A legally binding agreement signed between the buyer and seller, where the seller agrees not to compete with the buyer in the same business for a specified duration or within a certain geographical location. Non-compete agreements typically have a duration of 2 to 3 years.
P
Partnership
A legal business structure involving two or more individuals who collaborate and share responsibilities, profits, and liabilities.
P&L Statement (Profit & Loss Statement)
Also known as an income statement, it summarizes the financial performance of a business over a specific period. It provides insights into the present and past performance and aids in the preparation of the business appraisal.
S
SAAS (Software as a Service)
A software application hosted on the internet and licensed on a subscription basis. Examples include Shopify and Dropbox.
T
TM (Trailing Twelve Months)
The financial report measurement calculated for the twelve-month period immediately preceding the date of the report. It’s sometimes referred to as LTM (Last Twelve Months).
V
Valuation
The estimated price at which your business is listed on our marketplace. Business valuation depends on various factors, including business trends, net profit, traffic volume and source, customer base size, business complexity, and its lifetime. Manual human valuation is recommended for accurate results.
Remember, this is just a brief glossary of business terms. It’s always important to consult professionals and conduct thorough research when dealing with specific business transactions and agreements.