The language of enterprise value

Add-backs are expenses added back to profit because a new owner would not have them, like a personal car, a one-time legal bill or an above-market owner salary.

Adjusted EBITDA is EBITDA after add-backs and one-time items are removed. It is the profit number most buyers use to value a private company.

In a share sale, the buyer buys your shares and takes the whole company. In an asset sale, the buyer picks the assets it wants and leaves the company, and its liabilities, with you.

A buyer-ready company can pass a buyer's review without surprises: clean financials, documented processes, a team that runs without the owner and contracts in order.

Cash conversion is how much of your reported profit turns into actual cash in the bank, and how fast.

Customer acquisition cost is what you spend in sales and marketing to win one new customer.

Customer concentration is how much of your revenue depends on a few customers. A common warning sign is one customer above 15 to 20% of revenue.

Customer lifetime value is the total profit you expect from a customer over the whole relationship.

Customer retention is the share of customers who stay with you year over year. Churn is the share who leave.

Deal structure is how the price is paid: cash at closing, earnouts, seller financing, rollover equity and holdbacks.

Due diligence is the buyer's deep review of your business after an offer is accepted, covering financials, contracts, customers, employees, tax and legal.

An earnout is part of the price paid later, only if the business hits agreed targets after the sale.

EBITDA is earnings before interest, taxes, depreciation and amortization. It measures operating profitability: what the business earns from its day-to-day operations, before financing costs, taxes and non-cash accounting charges. It is not a measure of cash, because it leaves out things like equipment spending, debt payments, taxes and changes in working capital.

Enterprise value is what the whole business is worth, before debt is paid off and cash is added. It is usually profit times a multiple.

Equity value is enterprise value minus debt plus cash. It is what the shareholders actually receive.

A financial buyer, like a private equity firm or family office, buys a company as an investment and plans to grow it and sell it again.

Gross margin is revenue minus the direct cost of delivering your product or service, shown as a percentage of revenue.

A holding company is a separate company that owns shares of your operating company, often used to hold cash, investments or to plan for tax.

An industry buyer is a company in your space that buys yours to add customers, capabilities or reach.

A KPI scorecard is a short list of the numbers that show whether the business is on track, reviewed on a set schedule.

Your leadership team is the small group of people who can run the business day to day and make decisions without you.

A letter of intent is a mostly non-binding document that sets out a buyer's proposed price, structure and key terms before diligence begins.

The lifetime capital gains exemption is a Canadian tax rule that can shelter part of the gain on the sale of shares of a qualifying small business.

A multiple is the number a buyer multiplies your profit by to set a price. A business earning $2M in adjusted EBITDA at a 5x multiple is worth about $10M.

Net revenue retention compares revenue from last year's customers this year to what they paid last year, including upsells and losses.

Normalized earnings are your profits adjusted to show what the business would earn under typical, ongoing conditions, without one-time or owner-specific items.

Operating cadence is the rhythm of meetings, scorecards and reviews that keeps a company on plan, weekly, monthly and quarterly.

Owner compensation is everything you take out of the business: salary, bonuses, dividends and personal expenses.

Owner dependence is how much the business relies on you personally for sales, key relationships, decisions or know-how.

Owner optionality is the freedom to choose what happens next: grow the company, keep it, sell it or pass it on, on your timeline and not someone else's.

Pricing power is your ability to raise prices without losing customers.

Private equity firms raise money from investors to buy private companies, improve them and sell them, usually within three to seven years.

A profit leak is money the business loses every year through pricing, waste or inefficiency that it does not need to lose.

A quality of earnings report is an accounting review, usually paid for by the buyer, that tests whether your reported profit is real and repeatable.

A recapitalization is when you sell part of your company, often to private equity, take some cash off the table and keep a stake in the future growth.

Recurring revenue is income that repeats on a predictable schedule, like subscriptions, retainers or multi-year contracts.

Retained earnings are profits kept in the company over the years instead of being paid out to owners.

Rollover equity is the part of your sale proceeds you reinvest in the buyer's company instead of taking in cash.

Seller financing is when you lend the buyer part of the purchase price and they pay you back over time, with interest.

Unit economics are the profit and cost of a single customer, job or product, from winning it to delivering it.

Working capital is current assets minus current liabilities. In a sale, buyers set a target level, the peg, that must be left in the business at closing.