Glossary and Definitions

Acknowledge
A declaration by someone that something is true.

Affidavit
A sworn statement; written oath such as acknowledgment.

Affirmation
A solemn declaration; a non-religious oath.

Agency
The legal relationship between a principal and his agent arising from a contract in which the principal engages the agent to perform certain acts on the principals behalf.

Agency Disclosure
Written explanation to be signed by a prospective buyer or seller. It is an explanation to the client the role that the broker plays in a transaction. The purpose of disclosure is to explain whether the broker represents the buyer or seller or is a dual agent, (i.e. representing both) or a subagent (an agent of the sellers broker). This allows the customer to understand to which party the broker owes loyalty.

Agent
A person (natural), corporation, society, association or partnership (legal persons) acting by authority of a principal in a realty transaction for compensation.

Agreement of Sale
A bilateral contract whereby buyer promises to buy and seller promises to sell by execution and delivery of deed; also know as Purchase and Sale Agreement (P&S). Agreement means the same as Contract.

Amortization
Act of liquidating an indebtedness by equal and periodic payments usually monthly; this direct reduction method means each payment remains constant but ratio of principal and interest changes with an increasing larger portion credited to reducing debt; savings and loan associations popularized method.

Appraisal
An estimate of value.

Appreciation
Increase in value resulting from market forces such as demand stronger than supply.

Asking Price
The total amount for which a business or an ownership interest is offered for sale.

Asset Sale
Term has two definitions. The proper definition depends on its usage:

1. The means by which a business owner transfers ownership of tangible and intangible
assets to another owner without transferring the ownership structure.

2. The sale of a business enterprise at a price based solely upon the value of the tangible assets.

Attorney-in-Fact
Anyone who is authorized in writing to perform certain acts for another under written power of attorney; valid only during lifetime of party giving this power.

Attachment
A writ issued, beginning or during a legal action, commanding sheriff to attach (seize) property, rights and effects of defendant to satisfy possible credit demands of plaintiff if judgment comes out in plaintiffs favor.

Bill of Sale
A written instrument which is the evidence of transfer of one persons right in personal property to another.

Blue-Sky
That portion of a requested price that cannot be supported through the application of established valuation methodology and which generates no economic benefit.

Business Broker
A Business Broker is an intermediary dedicated to serving clients and customers who desire to sell or acquire businesses. A business broker is committed to providing professional services in a knowledgeable, ethical and timely fashion. Typically, a Business Broker provides information and business advice to sellers and buyer’s, maintains communications between the parties and coordinates the negotiations and closing processes to complete desired transactions.

Capital Expenditures
Investments of cash for improvements to remain competitive in a business.

Capitalized Items
Have an economic life of one year or more and the cost is moved to the balance sheet, and then these costs can be written down by depreciation or amortization over time.

Cash Flow
All cash (and cash equivalent) that flows to the benefit of the Owner including the net profit declared on tax returns.

Certified Lender Program
This process is for the more sophisticated and experienced lenders who have graduated beyond GP status. Typically, the lender now submits a complete package to the SBA and as a CLP Lender they are guaranteed a 3-day turnaround from the SBA.

Client
An entity with which a Business Broker has a fiduciary relationship.

Closing Costs
Costs of seller and buyer at conveyance of realty.

Closing Statement
A written accounting of funds to seller and buyer at passing of papers.

Co-Brokerage
An agreement between two or more Business Brokers for sharing services, responsibility and compensation on behalf of a client.

Co-Business Broker
A Business Broker who shares services, responsibility, and compensation on behalf of a client.

Confidentiality Agreement
A pact that forbids buyers, sellers, and their agents in a given business deal from disclosing information about the transaction to others.

Covenant
A promise in an agreement or contract agreeing to performance or nonperformance of certain acts, or requiring or preventing certain acts or uses.

Cooperating Business Brokers
Business Brokers who share their knowledge, expertise, and skills for the benefit of the business brokerage profession, clients, customers and the public good.

Collateral
A security, such as a mortgage, given to protect debt.

Commingling
The mixing of funds held for the benefit of others with the broker’s personal or business funds.

Commission
Money or other valuable consideration given to broker by principal for services rendered; amount is by agreement.

Conditional Sales Contract
A contract in which owner retains title until buyer has met all terms and conditions; a familiar device in land sales; also called land contract or installment contract. Buyer acquires equitable title until final payment; after delivery of deed, buyer has legal title.

Consideration
Something of value exchanged between parties of a contract; money, services, goods or promises.

Contract
A legal instrument between two parties to do or not to do something; in reality, it must be in writing to be enforceable.

Counter Offer
Voids first offer and creates new offer.

Customer
An entity to a transaction that receives services and benefits but has no fiduciary relationship with the Business Broker.

Deficiency Judgment
Court award to lender if sale at public auction does not equal mortgage debt.

Depreciation
Decrease in value for various reasons

Discretionary Earnings
The earnings of a business enterprise prior to the following items:
    •     Income taxes
    •     Non-operating income and expenses
    •     Nonrecurring income and expenses
    •     Depreciation and amortization
    •     Interest expense or income
    •     Owner’s total compensation for those services, which could be provided by a sole owner/manager.

Earnest Money
Deposit or binder given with Agreement to Buy.

Equity
Value or interest an owner of realty has above any debt on property; difference between value and mortgage debt.

Escrow
The holding of something of value by a person (escrow agent) for the benefit of other parties.

Exclusive Right to Sell
An employment agreement and contract giving the broker the right to receive a
Commission, if the property or business is sold by anyone including the seller during the term of the agreement.

Exclusive Right to Sell
An employment agreement and contract giving the broker the right to receive a commission if the property or business is sold by anyone including the seller during the term of the agreement.

Exclusive Agency
An employment agreement and contract giving only one broker the right to sell the property, for a specified period of time, and allowing the owner only to sell the property or business without paying a commission.

Expense
Anything that a company buys that has an economic life of less than one year. It shows up immediately on the income statement.

Fiduciary
A position of trust (e.g. broker to principal).

Finders Fee
An amount paid to another party for locating and referring a client or customer (illegal in Hawaii).

Finders Fee
Fee to broker for arranging loan for client; can also mean fee to broker for locating a property for client

General Program
This is the lowest rating and is given to lenders who know little about the SBA process. These lenders must submit each loan application to the SBA for additional underwriting and ultimate approval. This process can take up to two weeks with multiple requests for additional information.

Gross Lease
Owner receives rent and pays out expenses such as in apartment leasing; Net Lease: owner receives rent and tenant also pays out expenses normally paid by owner such as taxes, etc.

Irrevocable
Unchangeable.

Judgment
A court action describing indebtedness of one to another.

Lease
Contract between lessor (landlord) and lessee (tenant) for exclusive possession of realty for specified period under specific terms after which property reverts to lessor.

Leaseback
The purchase of improved property and the leasing of it back to seller; creates capital and favored tax treatment for seller.

Leasehold
The interest, which a lessee has in realty.

Letter of Intent
A document agreement between a buyer and a seller used in connection with the acquisition of a company. The letter of intent describes the basic terms and conditions of the transaction between the buyer and the seller, including price, due diligence periods, exclusivity or no-shops, and the basic conditions to closing the deal. Customarily presented before a definitive purchase agreement is entered into, the letter of intent provides a road map for the parties involved in the transaction.
The M&A Dictionary

Lien
A debt; a claim against property for payment of some debt.

Lis Pendens
Notice filed in a registry of deeds warning all persons that title to certain property is in litigation.

Listing
A written engagement (contract) between a principal and an agent authorizing the agent to perform services for the principal involving the principal’s property (business). Generally the services provided by the agent involve the proposed sale of the principal’s property or business. Also, the property or business listed by the agent is called a Listing.

List
To obtain a Listing

Non-operating/Noncontributing Asset
An asset unnecessary to the operation of a business enterprise and the generation of its revenues.

Open Listing
An employment agreement and contract given to any number of brokers without any liability to pay a commission to anyone except the one who first secures a buyer who is ready, willing and able to meet the terms of the listing or presents an offer acceptable to the seller. The sale of the property or business terminates all open listings, and in most cases, the seller may cancel an open listing at any time. In many states an open listing must have an expiration date.
The M&A Dictionary

Owner
A generic term used in business brokerage to represent the proprietor, general partner or controlling shareholder (singular or plural as appropriate) of a business enterprise.

Owner’s Salary
The salary or wages paid to the owner, including related payroll burden.

Owner’s Total Compensation
Total of an owner’s salary and perquisites, after the compensation of all other owners has been adjusted to market value.

Perquisites
Expenses incurred at the discretion of the owner, which are unnecessary to the continued operation of the business.

Preferred Lender Program
This is the top designation and enables the respective lenders to approve their own loans with no additional underwriting by the SBA. Typically, this designation means that the lender has sufficient experience and track history to adhere to SBA standards and make quality loans.
Courtesy: Ed McCormick, Simple SBA.com

Procuring Cause
A legal term that means the cause resulting in accomplishing a goal. Used in real estate [or business brokerage] to determine whether a broker is entitled to a commission.
Dictionary of Real Estate Terms

Referring Business Broker
A Business Broker who provides introductory information, which leads to a client relationship.

Representation
A statement or condition made that something is true or accurate.
SBA Lender Status

Stipulation
To make a special demand for something as a condition of an agreement.

Transaction Value
The total of all consideration passed at any time between the Buyer and Seller for an ownership interest in a business enterprise and may include, but not limited to, all remuneration for tangible and intangible assets such as furniture, equipment, supplies, inventory, working capital, non-competition agreements, employment and/or consultation agreements, licenses, customer lists, franchise fees, assumed liabilities, stock options, stock or stock redemptions, real estate, leases, royalties, earn-outs and future considerations.

Warranty
An expressed or implied statement that a situation or thing is as it appears to be or is represented to.