Businesses for Sale Key Terms

Understand the key terms related to businesses for sale

One of the most important aspects of buying a business for sale is determining its profitability. Few people want to purchase a business that is losing money unless they have a solid plan for how to turn it around. Knowing some of the lingo related to businesses for sale can help potential new business owners make a decision. For example, you may want to purchase a turnkey business or a franchise. Whatever you decide, try to look at the key value drivers and the EBITDA before signing on the dotted line.

 

Turnkey business

When a business owner purchases a turnkey business, all he or she has to do is "turn the key" to enter and start working. Basically, the term means a business that is established. The owner often purchases everything needed to run the business, including the business, store name and inventory.
Try: Home Business IT offers a good explanation, including types of turnkey businesses.

Franchise

A business owner that purchases a franchise purchases the right to market a particular product through a brand name. In addition, the business owner can receive training and marketing materials, making a franchise a good choice for first-time business owners. Fast-food places are franchises, but there are other types of franchises as well, such as tax preparation and cleaning services.
Try: Learn about franchises from the State of Wisconsin Department of Financial Institutions.

EBITDA

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is one way that businesses report their earnings. It helps potential buyers to understand the cash flow before debts, but it may give investors in incomplete picture, making the company look like it's doing better than it really is.
Try: Learn more about EBITDA and its potential drawbacks from The Motley Fool.

Demographics

Demographics are the typical characteristics of your customers. Typical demographics include age, gender and education level. It's important to understand the demographics of a particular company before you purchase because you want to know who you will be marketing to.
Try: The U.S. Department of Labor collects demographics on workers in the U.S. You can see a brief description of demographics and examples of demographic studies on this site.

Business valuation

Business valuation is measuring a business' value. Before purchasing a business, an investor should have a good idea of the business' value to be sure that it will be a profitable investment.
Try: SCORE discusses the basics of business valuation and five myths associated with it.

Key value drivers

Key value drivers are the most important things that bring value to a company. These could include patents, products or brand names. When purchasing a business for sale, make sure that it includes the key value drivers.
Try: Evan Carmichael talks about key value drivers and how to determine them.

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