Glossary
Every term in a Canadian business sale, in plain English.
The vocabulary buyers, sellers, brokers and lenders actually use — defined without jargon, checked against primary sources, and free to read. 221 terms and growing.
A
- Add-on acquisitionAn add-on acquisition is a smaller business acquired by an existing platform company to expand it — adding customers, geography or capabilities to a base already established through an earlier platform acquisition. It is the mechanism a roll-up strategy uses to grow after its initial purchase.
- Asset purchase agreement (APA)An asset purchase agreement (APA) is the contract used when a buyer acquires specific assets and liabilities of a business rather than buying the corporation’s shares. The seller’s company keeps existing and keeps anything not listed, while the buyer picks up only what the APA describes.
- AmalgamationAn amalgamation is a statutory process that merges two or more corporations into a single continuing corporation, which automatically takes on the assets, liabilities and obligations of the companies that combined. It is a common way to restructure related companies, including after one company buys another’s shares.
- Articles of incorporationArticles of incorporation are the document filed with a government corporate registry to legally create a corporation. They set the company’s name, the classes of shares it can issue, any restrictions on its business or share transfers, and other foundational rules the corporation operates under.
- Asset saleAn asset sale is a transaction where the buyer purchases specific assets of a business — equipment, inventory, goodwill, contracts — rather than the shares of the company that owns them. The seller keeps the corporation, and with it most of the company’s history and liabilities.
- Asset-based lending (ABL)Asset-based lending is a financing structure in which the amount a business can borrow is tied directly to the value of specific pledged collateral, most often accounts receivable, inventory and equipment, rather than to the business’s overall cash flow. It is generally more available to asset-heavy businesses than cash-flow lending is, and it typically fluctuates as those assets fluctuate.
- Amortization period vs. termThe amortization period is the length of time it would take to fully repay a loan through its regular instalments if nothing else changed, while the term is the length of the specific agreement before the loan must be renewed, renegotiated or refinanced. A loan’s term is very often shorter than its amortization period, which is why a balloon payment or refinancing frequently comes into play.
- Associate buy-inAn associate buy-in is when a professional already working in a practice — a dentist, doctor, veterinarian or lawyer, for example — purchases an equity stake in it rather than the practice being sold outright to an outside buyer. The price is usually set by a formula tied to collections or earnings and often paid in over time.
- Assignment clauseAn assignment clause is the contract provision that controls whether, and under what conditions, a party can transfer its rights and obligations under that contract to someone else — usually requiring the other party’s written consent. It decides whether a key contract can actually move with the business in a sale.
- Arbitration clauseAn arbitration clause requires disputes arising from the contract to be resolved through private arbitration by an arbitrator or panel, instead of through the public court system. It trades the courts’ procedures and public record for a process the parties themselves largely design.
- Accounts receivable ageingAn accounts receivable ageing schedule sorts everything customers owe by how long it has been outstanding — current, 30 days, 60, 90 and beyond. The older a balance gets, the less likely it is to ever be collected, which makes the schedule one of the fastest ways to see whether reported revenue is really cash the business will receive.
- Asset-based valuationAsset-based valuation values a business as the sum of its individual assets — equipment, inventory, receivables, real estate, and intangibles — minus its liabilities, rather than as a multiple of earnings. It’s the standard reference point for asset-heavy or capital-intensive businesses and for companies with weak or inconsistent profitability.
- ARR and MRRARR (annual recurring revenue) and MRR (monthly recurring revenue) measure the predictable, subscription-style revenue a business can count on over the next year or month, based on active subscriptions and contracts at a point in time. They exclude one-time sales, and MRR is simply ARR divided by twelve, or vice versa.
- Add-backsAdd-backs are expenses added back to a business’s reported profit because they are personal, one-time, or specific to the current owner and will not continue after the sale. They are how reported net profit becomes SDE or adjusted EBITDA, and they are the single most contested part of a valuation.
- Asking multipleAn asking multiple is the asking price expressed as a multiple of annual earnings — usually SDE for owner-operated businesses and EBITDA for larger ones. A business listed at $900,000 with $300,000 in SDE carries an asking multiple of 3.0×.
B
- Buy boxA buy box is a written set of acquisition criteria — industry, geography, revenue or earnings range, and preferred deal structure — that a buyer uses to filter opportunities and communicate clearly what they are looking for to brokers, advisors and sellers.
- Buy-side advisorA buy-side advisor is a professional engaged by a buyer to help find, evaluate, negotiate and close an acquisition. Unlike a listing broker, who is paid by and represents the seller, a buy-side advisor’s duty runs to the buyer throughout the search and the deal.
- Buyer personaA buyer persona is a profile describing a type of prospective buyer — their financing capacity, industry background, preferred deal structure and risk tolerance — used by brokers, platforms and buyers themselves to match likely buyers to specific opportunities and focus outreach where it is most likely to succeed.
- Break feeA break fee is a payment one party agrees to make to the other if it walks away from a deal after a certain point without a permitted reason, usually to cover the other side’s due diligence and legal costs. In small business sales they are uncommon but sometimes negotiated for larger or more complex deals.
- Buyer qualificationBuyer qualification is the process a seller or broker uses to assess whether a prospective buyer is financially capable, genuinely serious and a reasonable fit before sharing confidential information or moving toward a letter of intent. It typically involves a signed non-disclosure agreement, a short background conversation, and evidence such as proof of funds.
- Bring-down certificateA bring-down certificate is a document the seller signs at closing confirming that the representations and warranties made in the definitive agreement remain true as of the closing date, not just when the agreement was originally signed. It gives the buyer a fresh, dated confirmation immediately before ownership actually changes hands.
- Borrowing baseA borrowing base is the maximum amount a business can draw under an asset-based lending facility at a given time, calculated by applying agreed advance rates to eligible collateral — typically accounts receivable and inventory — and recalculating on a regular schedule as those balances change. It is the mechanism that turns asset-based lending from a fixed loan into a moving credit limit.
- Balloon paymentA balloon payment is a lump-sum amount due at the end of a loan’s term that is significantly larger than the regular instalments paid throughout, because the loan was not fully amortized to zero by the scheduled payments alone. It most often shows up when a loan’s amortization period is longer than its term, leaving an unpaid balance due when the term ends.
- BDC (Business Development Bank of Canada)The Business Development Bank of Canada is a federal Crown corporation that lends directly to Canadian businesses. Unlike the CSBFP — a loss-sharing program delivered through private lenders — BDC is itself the lender, and it finances acquisitions including the goodwill portion that banks often will not.
- Basket and de minimisA de minimis threshold screens out any individual indemnity claim too small to count at all, and a basket is the cumulative amount of qualifying claims that must accumulate before the indemnifying party has to pay anything. Together they keep small, disputable amounts out of a business sale’s post-closing claims process.
- Bulk sales legislationBulk sales legislation historically protected a business’s unsecured creditors when the business sold most of its inventory or assets in a single transaction, typically by requiring the seller to disclose its creditors and, in some versions, hold back part of the sale proceeds to pay them. Whether such legislation still applies today depends on the province.
- Beneficial ownership registerA beneficial ownership register is a corporate record identifying the individuals who actually own or control a corporation, even where that control sits behind holding companies, trusts or nominee shareholders. Canadian corporations are increasingly required by law to maintain one, and in some cases to report it to a government registry.
- Blind listingA blind listing advertises a business for sale without naming it or giving its exact address. Buyers see the industry, region, size and financial summary; the identity is disclosed only after a confidentiality agreement is signed and, usually, the seller approves the buyer.
- Bad debtBad debt is money a customer owes that the business concludes it will never collect, and either writes off or sets aside a reserve for. How consistently a seller has recognized bad debt over time — rather than leaving stale receivables sitting on the books uncollected and unwritten-off — is a direct test of how reliable the rest of the financial statements are.
- Business continuityBusiness continuity is how well a business can keep operating through a disruption — a key employee leaving, a supplier failure, a system outage, or the sale itself. In an M&A context it usually means one specific question: does the business survive the current owner walking away, or does performance drop the moment that person stops showing up?
- Bank account transferA bank account transfer, in a business sale, is the buyer setting up new banking — operating account, merchant processing, payroll account — rather than literally taking over the seller’s existing accounts, which generally cannot be reassigned to a new owner. Getting the new accounts open before closing keeps deposits and payments from stalling on day one.
- Business name changeA business name change is the buyer’s decision, after closing, to keep operating under the acquired business’s existing name, rebrand under a new one, or run some hybrid transition between the two, and the registrations, signage, contracts and accounts that decision touches. It is as much a legal filing question as a marketing one.
- Book of businessA book of business is the complete set of client relationships, accounts, and recurring engagements a company or individual professional has built up over time. In service industries — insurance brokerages, financial advisory, accounting, and similar fields — the book of business is often the single most valuable asset changing hands in a sale.
C
- Competitive sale processA competitive process is a structured sale run by a seller’s broker or advisor in which several prospective buyers review the same information and submit offers within a set timeline, rather than negotiating with one buyer at a time. The structure is designed to create genuine competitive tension on price and terms.
- Closing condition (condition precedent)A closing condition, or condition precedent, is something that must be satisfied or waived before a party is obliged to complete the transaction. If a condition is not met by the deadline, the party it protects can usually walk away without penalty.
- Corporate minute bookA corporate minute book is the company’s legal record book. It holds the articles of incorporation, bylaws, director and shareholder resolutions, share registers, and any shareholder agreements. Buyers and lenders review it to confirm a company was properly governed and its shares were validly issued.
- Corporate good standingCorporate good standing means a company has kept its filings and fees current with the government registry that governs it, so it is not in default and remains a validly existing corporation. Buyers, lenders and landlords often ask for a certificate of status confirming this before completing a transaction.
- Closing dateThe closing date is the day ownership of the business legally transfers from seller to buyer, once every closing condition in the definitive agreement has been satisfied and the purchase price has been paid. It is set in the agreement but frequently shifts as conditions take longer to satisfy than expected.
- Continuity of serviceContinuity of service means an employee’s accumulated length of employment carries forward through a change of business ownership rather than resetting. It determines notice, termination pay, severance and vacation entitlements, all of which increase with tenure.
- Collective agreementA collective agreement is the contract between an employer and a union covering unionised employees. Labour legislation across Canada generally provides that where a business is sold as a going concern, the collective agreement and the union’s bargaining rights bind the buyer — in an asset sale as well as a share sale.
- Capital lease vs. operating leaseA capital lease transfers most of the risks and benefits of ownership to the lessee and is recorded on the balance sheet as an asset with a matching liability, while an operating lease is closer to a true rental and is recorded as an ongoing expense. Which category a lease falls into affects both the buyer’s financing capacity and how the target’s financial statements should be read.
- Commitment letterA commitment letter is a lender’s written commitment to provide a loan on specified terms — amount, structure, pricing basis and conditions — once the borrower satisfies the conditions listed in it. It sits between an informal indication of interest from a lender and the final loan documents signed at closing.
- Cash sweepA cash sweep is a loan provision that requires a portion of a business’s excess or surplus cash, beyond a defined operating threshold, to be applied toward paying down debt ahead of the regular amortization schedule. It shortens how long the debt is expected to remain outstanding but reduces how much surplus cash the owner can draw or reinvest freely.
- CVOR certificateA CVOR certificate is the Ontario registration that lets a business operate commercial trucks or buses over a certain weight or seating threshold, and it is issued to a specific operator rather than to the vehicles or the business name. It generally does not transfer automatically when a trucking business is sold.
- Carrier safety ratingA carrier safety rating is the standing — such as satisfactory, conditional or unsatisfactory — that a trucking or bus operator holds with its provincial regulator based on inspections, collisions and compliance history. In Ontario it sits on the carrier’s CVOR record, and buyers typically review it early because a poor standing can affect insurance, contracts and the ability to keep operating.
- Construction holdbackA construction holdback is the portion of payment — generally a percentage set by provincial construction lien legislation — that an owner or contractor must retain for a set period after work is done, to cover potential lien claims from subcontractors or suppliers. In a business sale involving construction contracts, unreleased holdbacks are amounts the buyer typically has to account for.
- Change-of-control clauseA change-of-control clause is a contract provision that treats a shift in who owns or controls a company as a triggering event — allowing termination, consent, or an acceleration right — even though the company itself has not transferred any assets. It most often appears in leases, loan agreements and franchise or supplier contracts.
- Confidential information memorandum (CIM)A confidential information memorandum is the detailed document describing a business for sale, provided to qualified buyers after they sign a confidentiality agreement. It identifies the business and sets out its operations, financial performance, customers, staffing and growth opportunities.
- Capital expenditure (capex)Capital expenditure, or capex, is money spent on assets expected to provide value for more than a year — equipment, vehicles, leasehold improvements, a building — as opposed to day-to-day operating costs. Buyers split it further into maintenance capex, which just keeps the business running as-is, and growth capex, which expands it.
- Customer contractsCustomer contracts are agreements that commit a customer to buy from the business for a defined term or on defined terms — a service contract, a supply agreement, a maintenance retainer. They are worth more than a handshake relationship precisely because they are enforceable, but only if the contract actually transfers to whoever buys the business.
- Closing checklistA closing checklist is the master list of every document, signature, payment and consent a business sale needs before the deal can complete — condition satisfaction, corporate approvals, funds flow, licence transfers and insurance in force. Whoever holds the working version is effectively running the closing.
- Customer notificationCustomer notification is telling a business’s customers that ownership has changed — usually timed close to closing day, coordinated between buyer and seller, and covering who to contact going forward and how their information is being handled. Handled badly, it is the fastest way to lose the customers the buyer just paid for.
- Canada Small Business Financing Program (CSBFP)The Canada Small Business Financing Program is a federal program administered by Innovation, Science and Economic Development Canada under which the government shares the risk of certain small business loans with participating lenders. It is not a government loan — a buyer applies to a bank or credit union, which underwrites and administers it.
- CCA recaptureCapital cost allowance recapture happens when depreciable assets are sold for more than their remaining undepreciated capital cost. The previously claimed depreciation is effectively taken back and included in income — taxed as ordinary business income, not as a capital gain.
- Comparable transactionsComparable transactions — often called ’comps’ — are recent sales of similar businesses, used as a reference point when pricing a business for sale. Analysts look at deals in the same industry, of similar size, and in a similar geography, then compare the multiples those deals sold at to gauge where a current listing might land.
- Customer churnCustomer churn is the rate at which existing customers stop doing business with a company over a given period — cancelling a subscription, not renewing a contract, or simply not coming back. It’s usually expressed as a percentage of customers, or of revenue, lost per month or per year, and low churn generally signals durable revenue.
- Customer concentrationCustomer concentration is the share of revenue that comes from a small number of customers. It matters because losing one account can erase a disproportionate share of earnings, so buyers and lenders discount concentrated revenue even when the business is profitable and growing.
D
- Deal flowDeal flow is the ongoing stream of acquisition opportunities available to a buyer — businesses for sale that reach them through brokers, listing marketplaces, referrals or their own direct outreach. Its value depends less on volume than on how well the sourcing channel matches the buyer’s actual criteria.
- Disclosure scheduleA disclosure schedule is the annex to a purchase agreement in which the seller lists the specific exceptions to the representations and warranties they are giving. A properly disclosed exception cannot later be the basis of a claim for breach of that representation.
- Directors’ resolutionA directors’ resolution is a written record showing that a company’s board of directors approved a specific decision, such as declaring a dividend, approving a sale, or appointing an officer. It can be passed at a meeting or signed by all directors without a meeting, depending on the company’s bylaws.
- Drag-along rightA drag-along right allows shareholders who hold enough shares, usually a defined majority, to force the remaining shareholders to sell their shares on the same terms if the majority agrees to sell the company. It exists so a buyer can acquire all the shares even if a small holder refuses to sell.
- Dissent rightsDissent rights let a shareholder who votes against certain major corporate changes, such as an amalgamation or a sale of substantially all the company’s assets, demand that the company buy back their shares for fair value instead of being forced to go along with the change.
- DepositA deposit is a sum of money a buyer puts forward, usually on signing the definitive purchase agreement, to show they are serious about closing. It is typically held by a lawyer or escrow agent and applied to the purchase price at closing, with the agreement setting out exactly when it becomes non-refundable.
- Definitive purchase agreementA definitive purchase agreement is the binding contract that governs a business sale, replacing the earlier non-binding letter of intent. It sets out the final price, structure, representations and warranties, closing conditions, and what happens after closing, and it is the document both parties actually sign to complete the transaction.
- Data roomA data room is a secure, organized repository, usually online, where a seller uploads financial statements, contracts, corporate records and other documents so a buyer’s team can review them during due diligence. Access is normally restricted to people who have signed a non-disclosure agreement and is tracked so the seller can see what was viewed.
- Deal fatigueDeal fatigue is the exhaustion and declining motivation that builds up in a buyer or seller as a transaction drags on through repeated rounds of due diligence, renegotiation and delay. It is a common, informal reason deals that were otherwise sound end up stalling, being renegotiated on worse terms, or falling apart entirely.
- Debt service coverage ratio (DSCR)Debt service coverage ratio compares a business’s available cash flow to the loan payments it must make over the same period. A DSCR of 1.0 means the business generates exactly enough to cover its debt and nothing more; lenders want a cushion above that.
- Down payment (buyer equity)A down payment, or buyer equity, is the portion of a purchase price a buyer funds from their own resources rather than borrowing. Lenders require meaningful buyer equity because it aligns incentives — a buyer with nothing at risk has little reason to fight through a difficult first year.
- Deferred maintenanceDeferred maintenance is repair or upkeep work that was postponed rather than done — on equipment, a building, a vehicle fleet — usually to preserve cash flow in the short term. It does not disappear when the work is skipped; it accumulates as a cost the next owner inherits, often at a worse price than if it had been handled on schedule.
- Domain and account transferA domain and account transfer is moving a business’s website domain, hosting, email, social media and software subscriptions into the buyer’s ownership and control at closing, not just the login credentials, but the actual registered ownership of each account. A buyer who only gets passwords, and not ownership, can lose the account entirely if the seller later changes accounts or simply forgets.
- Due diligenceDue diligence is the buyer’s structured investigation of a business before closing — verifying the financial records, contracts, legal standing, employees, assets and regulatory position against what the seller has represented. It is where most failed deals fail, and where most price renegotiations happen.
- Discounted cash flow (DCF)Discounted cash flow (DCF) is a valuation method that projects a business’s future free cash flows over several years, then discounts each year’s projection back to today’s dollars using a rate that reflects risk and the time value of money. The result is a present value built entirely on assumptions about future performance.
- Days on marketDays on market is the number of days a business has been publicly listed for sale without closing. It is a signal rather than a verdict: a long-listed business is not necessarily a bad one, but a listing that has sat for many months almost always has a specific, identifiable reason.
E
- Entrepreneurship through acquisition (ETA)Entrepreneurship through acquisition, or ETA, is the path of becoming an owner-operator by buying an existing, cash-flowing business rather than starting one from scratch. It covers several financing models — from self-funded purchases to search funds — unified by the goal of stepping directly into a CEO role.
- Estate freezeAn estate freeze is a tax planning technique where a business owner exchanges their common shares for fixed-value preferred shares, then new common shares, which will capture future growth, are issued to children or a family trust. The owner’s tax exposure on the business is effectively locked in at today’s value.
- Exclusivity (no-shop) clauseAn exclusivity clause, also called a no-shop clause, is a promise in a letter of intent that the seller will stop marketing the business and negotiating with other buyers for a set period, usually while due diligence and the definitive agreement are being finalized.
- Escrow agentAn escrow agent is a neutral third party, often a lawyer or trust company, who holds money or documents on behalf of a buyer and seller until specific conditions in the deal are satisfied. Once those conditions are met, the escrow agent releases the funds or documents according to the agreement’s instructions.
- Earn-outAn earn-out is a portion of the purchase price paid only if the business hits agreed targets after closing. It is used to bridge disagreement about what a business is worth: the seller believes the earnings will continue, the buyer is not certain, and the earn-out lets the outcome decide.
- Equipment financingEquipment financing is a loan or lease used specifically to acquire machinery, vehicles, fixtures or other tangible equipment, with the equipment itself pledged as the primary collateral. It is generally more available and more straightforward to underwrite than financing tied to a business’s goodwill, because the lender has a physical, resalable asset behind the loan.
- Equipment appraisalAn equipment appraisal is an independent professional’s estimate of what a business’s machinery and equipment is actually worth, typically expressed as fair market value and orderly liquidation value. Buyers, sellers and lenders use it to support purchase price allocation, financing decisions and insurance coverage rather than relying on the seller’s book value or a rough estimate.
- Entire agreement clauseAn entire agreement clause — sometimes called an integration or merger clause — states that the signed contract is the complete and final agreement between the parties, superseding earlier drafts, term sheets, emails and verbal discussions on the same subject. Once it is signed, promises made outside the document generally stop mattering.
- Equipment obsolescenceEquipment obsolescence is equipment that still functions but no longer meets the business’s needs — because newer technology has made it slower or less efficient, parts and service are no longer available, or it can no longer meet a customer or code requirement. Book value tracks depreciation, not usefulness, so the two frequently disagree.
- Escrow releaseAn escrow release is the payment of some or all of a holdback out of escrow to the seller once the conditions for releasing it have been met — typically the survival period expiring with no outstanding claim, or a claim being resolved. Until release, the funds are the buyer’s main practical protection.
- Estoppel certificateAn estoppel certificate is a signed statement from a landlord confirming the current facts of a lease — the rent, the term, the deposit held, whether any default exists, and what side agreements are in place. Once given, the landlord is generally prevented from later asserting something inconsistent with it.
- Environmental site assessment (Phase I / Phase II)An environmental site assessment is a structured investigation of a property’s contamination risk. A Phase I is a non-intrusive review of history, records and site conditions; a Phase II follows only if the Phase I identifies concerns, and involves sampling soil or groundwater.
- Enterprise valueEnterprise value is the value of a business’s core operations, independent of how that business happens to be financed. It represents what it would cost to acquire the whole operating entity — commonly calculated as equity value plus debt, minus cash — and is the figure most often used when comparing businesses or applying an earnings multiple.
- Equity valueEquity value is the value of a business’s ownership stake — what shareholders actually own after debt is paid off. It’s calculated by starting from enterprise value, subtracting outstanding debt, and adding back cash on the balance sheet, which is why two businesses with the same operations can have very different equity values.
- EBITDA marginEBITDA margin is EBITDA divided by revenue, expressed as a percentage. It shows how much of every dollar of sales converts into operating profit before financing costs, taxes, depreciation, and amortization are taken into account, which makes it a quick way to compare operating efficiency across businesses of very different sizes.
- EBITDAEBITDA is earnings before interest, taxes, depreciation and amortization — a measure of operating profit that strips out financing and accounting choices so two businesses can be compared directly. Unlike SDE, it does not add back an owner’s salary, because it assumes the business pays a market wage for management.
F
- Financial buyerA financial buyer acquires a business primarily for the return it can generate on its own — cash flow, growth potential and eventual resale value — rather than for synergy with an existing operation. Individual buyers, search funds, private equity firms and family offices are all types of financial buyer.
- Family officeA family office is a private organization that manages the wealth of a single family — or, as a multi-family office, several — and may include direct business acquisitions among its investments. Unlike a private equity fund, a family office usually has no fixed fund life, which can mean a longer, more flexible holding horizon.
- Funds flow statementA funds flow statement is the schedule setting out every payment made on closing day — who sends what amount to whom, in what order, and from which account. It converts a purchase price into the actual wires that have to leave the right accounts at the right time.
- Family trustA family trust is a legal arrangement where a trustee holds property, such as shares in a family business, for the benefit of named beneficiaries, typically family members. It is commonly used alongside an estate freeze to spread future growth and income among several family members.
- Factoring (accounts receivable financing)Factoring is a financing arrangement in which a business sells its accounts receivable to a third party, called a factor, in exchange for immediate cash at a discount to the invoice value. The factor then collects payment from the customers directly, or the business repays it as customers pay, depending on how the arrangement is structured.
- Food premises permitA food premises permit is the local public health authorisation that allows a restaurant, café or food retailer to prepare and serve food to the public, and it is generally tied to the specific operator and location rather than the business itself. A change of ownership typically requires the new owner to apply for their own permit before opening.
- Force majeureForce majeure is a contract clause — or, in Quebec, a codified legal doctrine — that excuses a party from performing its obligations when an extraordinary event genuinely outside anyone’s control makes performance impossible, such as a natural disaster, war, or a pandemic-scale disruption. It does not excuse performance that is merely harder or less profitable.
- Franchise transferA franchise transfer is the sale of a franchised business to a new franchisee. Because the franchise agreement is a contract with the franchisor, virtually every one requires the franchisor’s consent — and the franchisor sets the conditions on which that consent is given.
G
- General security agreement (GSA)A general security agreement is a contract in which a business grants a lender a security interest over all of its present and future personal property — inventory, equipment, receivables and more — as collateral for a loan. It is the standard document behind most Canadian business acquisition financing.
- Guarantor releaseA guarantor release is a written agreement from a lender confirming that an individual is no longer personally liable under a guarantee they signed. Selling a business, paying off part of a loan, or a buyer verbally agreeing to “take over the debt” does not release a guarantor on its own — only the lender can do that, in writing.
- Governing law clauseA governing law clause specifies which province’s — or country’s — body of law will be used to interpret and enforce a contract, regardless of where any dispute over it ends up being heard. It is a choice of substantive legal rules, not a choice of courthouse.
- Garden leaveGarden leave is an arrangement where a departing party — often a key employee, or a seller staying on temporarily after a sale — continues to be paid and bound by their existing duties, but is kept away from actually working day to day, usually during a notice or transition period. It manages the awkward stretch between announcement and departure.
- Gross marginGross margin is revenue minus the direct cost of goods or services sold, expressed as a percentage of revenue. It measures how much a business keeps from each sale before covering overhead like rent, marketing, and administrative salaries, and it’s usually the first place a buyer looks to judge the health of the core pricing model.
- GoodwillGoodwill is the portion of a purchase price that exceeds the value of a business’s identifiable assets — its reputation, customer relationships, brand, trained staff and earning capacity. In an asset sale it is a separate line in the purchase price allocation, and it has its own tax treatment.
H
- HoldcoA holdco, short for holding company, is a corporation whose main role is owning shares in another company, called the opco, rather than running day-to-day operations itself. Business owners commonly use a holdco to move surplus cash out of the operating company or to hold shares ahead of a future sale.
- Holdback (escrow)A holdback is a portion of the purchase price kept back at closing — often in escrow with a lawyer — and released later once agreed conditions are met or a claim period expires. It exists so a buyer has something to recover against if a seller’s representations turn out to be wrong.
I
- IndemnityAn indemnity is a contractual promise by one party to compensate the other for defined losses. In a business sale it is the mechanism that turns a breached representation into an actual payment, without the buyer having to prove a damages claim from scratch.
- Information request listAn information request list is the document a buyer’s team sends the seller at the start of due diligence, itemizing every financial, legal, operational and tax document they want to review. It gives structure to the data room and lets both sides track what has been provided and what is still outstanding.
- Indication of interestAn indication of interest is a short, non-binding written statement a prospective buyer submits after reviewing a teaser or confidential information memorandum, outlining a preliminary price range, proposed structure and next steps before making a full offer. It is less detailed and less committed than a letter of intent, and creates no binding obligation on either side.
- Interest-only periodAn interest-only period is a stretch of a loan’s life during which the borrower pays only the interest accruing on the balance, with no portion of the payment reducing the principal owed. It is used to ease cash flow pressure early in a loan, most often in the first months or years after an acquisition, before regular principal-and-interest payments begin.
- Intercreditor agreementAn intercreditor agreement is a contract between two or more lenders to the same borrower that sets out who ranks ahead of whom, who gets paid first, and what each may do on a default. It is the document that lets a bank loan and a vendor take-back sit on the same business.
- IP assignmentAn IP assignment is the document that formally transfers ownership of intellectual property — trademarks, patents, copyright or trade secrets — from one party to another, and it is what actually moves ownership in a deal rather than the purchase agreement alone. It matters most where IP was created by founders, contractors or employees who may not have automatically assigned it to the company.
- Indemnity capAn indemnity cap is the maximum amount one party — usually the seller — can be required to pay the other under the purchase agreement’s indemnity provisions, most often for breaches of representations and warranties discovered after closing. It sets the outer limit of post-closing financial exposure on the deal.
- Inventory turnoverInventory turnover measures how many times a business sells and replaces its stock over a period — cost of goods sold divided by average inventory. A high number means stock moves fast; a low or falling number often means inventory is aging, overbought or no longer sellable at the value shown on the books.
- Insurance transferInsurance transfer refers to how coverage — property, liability, business interruption, and statutory workers’ compensation — changes hands when a business is sold. Most private policies do not transfer automatically; the buyer typically needs new policies bound and in force at closing, and workers’ compensation coverage is handled through the relevant provincial board rather than a private insurer.
- Insurance binderAn insurance binder is short-term written confirmation from an insurer that coverage — property, general liability, business interruption, sometimes cyber — is in force as of a specific date, issued before the full policy documents are ready. Lenders and landlords typically require one as proof of coverage before they will let closing proceed.
K
- Key employee retention agreementA key employee retention agreement is a contract that pays a named employee a bonus for remaining with the business through a transaction and for a defined period afterwards. It protects the buyer against losing the people the business actually depends on at the moment of handover.
- Knowledge qualifierA knowledge qualifier is language added to a representation in a purchase agreement — such as "to the Seller’s knowledge" — that limits how much the seller is guaranteeing to what they actually knew, rather than making an absolute statement of fact regardless of awareness. It shifts risk for undiscovered problems toward the buyer.
- Key-person riskKey-person risk is the risk that a business’s results depend heavily on one individual — an owner, a licensed tradesperson, a single salesperson holding the client relationships — so that person leaving would measurably hurt revenue or operations. Buyers respond with a lower multiple, a longer transition, or a retention agreement.
- Knowledge transferKnowledge transfer is the seller passing on the operational know-how that never made it into any document — supplier quirks, informal pricing rules, which customer calls personally matter, how a specific piece of equipment actually behaves. It is usually the least contractual part of a sale and often the part that determines whether the buyer actually succeeds.
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- Loan-to-value ratio (LTV)Loan-to-value ratio is the amount a lender advances expressed as a proportion of the appraised value of the assets pledged as security. It caps how much can be borrowed against a given piece of collateral, independent of whether the business’s cash flow could otherwise support a larger loan.
- Letter of creditA letter of credit is a commitment issued by a bank on behalf of a customer, promising to pay a beneficiary a stated amount if specified conditions are met. In an acquisition it is sometimes used as an alternative to cash — backing a deposit, an indemnity holdback, or a landlord’s security requirement — without tying up actual working capital.
- Loan covenantA loan covenant is a condition in a loan agreement that the borrower must keep meeting after the money is advanced — maintaining a financial ratio, delivering statements on time, or not taking certain actions without consent. Breaching one can trigger default even when every payment has been made.
- Liquor licence transferA liquor licence does not automatically pass to a new owner when a bar, restaurant or retail store changes hands. In Ontario, the AGCO generally requires a fresh application or a formal transfer process before the new owner can legally sell alcohol, and the business typically cannot serve liquor under the old licence once ownership changes.
- Liquidated damagesLiquidated damages are a pre-agreed amount, written into the purchase agreement, that a party is owed if the other side commits a specific breach — most often walking away from a signed deal. The point is to avoid having to prove the actual dollar loss in court after the fact.
- Listing agreementA listing agreement is the contract engaging a business broker to market a business for sale. It sets the term, the fee, whether the engagement is exclusive, and — importantly — the circumstances in which the fee is payable even if the broker did not find the buyer.
- Lien search (PPSA)A lien search checks the provincial personal property security registry for security interests registered against a business’s assets. It reveals which equipment, vehicles or receivables are already pledged to a lender, and it is a standard step before any asset purchase closes.
- Licence re-applicationLicence re-application is applying for a business licence or regulatory registration in the buyer’s own name rather than assuming an existing one carries over, because most licences, permits and registrations are issued to a specific person or entity and do not automatically transfer with a change of ownership. Missing this step can leave a business unable to legally operate on day one.
- Letter of intent (LOI)A letter of intent is a document setting out the main commercial terms both sides have agreed in principle — price, structure, timeline and conditions — before lawyers draft the binding purchase agreement. Most of an LOI is deliberately non-binding, but specific clauses within it usually are.
- Lease assignmentA lease assignment transfers a commercial lease from the seller to the buyer, so the buyer takes over the existing lease on its existing terms. Almost every commercial lease requires the landlord’s consent to assign, which makes the landlord an unavoidable third party in the transaction.
- Leasehold improvementsLeasehold improvements are permanent alterations made to leased premises — a commercial kitchen, a build-out, flooring, electrical or plumbing work. They are frequently a large part of what a buyer is paying for, and under most leases they become the landlord’s property at the end of the term.
- Lifetime capital gains exemption (LCGE)The lifetime capital gains exemption is a federal deduction that allows an eligible Canadian resident individual to shelter capital gains realised on the sale of qualifying small business corporation shares, or qualified farm or fishing property. It is a lifetime limit, indexed annually, and it applies to share sales — not to asset sales.
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- Material adverse change (MAC)A material adverse change clause allows a buyer to refuse to close if the business suffers a serious, adverse change between signing and closing. It exists because time passes between the two, and the buyer priced the business as it was when they signed.
- Management presentationA management presentation is a meeting, usually held after initial due diligence has started, where the seller’s owner and key staff walk the buyer through how the business actually operates: its customers, operations, staffing and outlook. It gives the buyer context that documents alone cannot convey and lets them assess the people they may be relying on.
- Management buyout (MBO)A management buyout is a sale of a business to its existing management team or key employees. It is a common succession route in Canada, because the buyers already know the business and the transition risk that worries outside buyers is largely absent.
- Mezzanine financingMezzanine financing is subordinated debt that ranks behind a senior lender but ahead of the owner’s equity. It carries a higher interest rate to compensate for that position, and it sometimes includes a right to convert into equity or share in an increase in value.
- Motor vehicle dealer registrationIn Ontario, anyone who buys and sells motor vehicles as a business — including a used car dealership — generally has to be registered with OMVIC, the province’s motor vehicle dealer regulator. Registration is tied to the individual and the dealership entity, so a buyer acquiring a dealership typically needs its own registration rather than inheriting the seller’s.
- Merchant account transferA merchant account is the arrangement that lets a business accept credit and debit card payments, and it is underwritten to a specific legal entity rather than to the business as a going concern. It generally cannot simply be reassigned in a sale — the buyer typically has to apply for and be approved for its own merchant account before or shortly after closing.
- Marketplace seller accountA marketplace seller account is the account a business uses to sell on a platform like Amazon or Etsy, and it is generally tied to a specific legal entity under that platform’s terms of service rather than freely transferable. Buyers often have to acquire the underlying entity through a share sale, or work through the platform’s ownership-change process, to keep the account and its history.
- Minute book updateA minute book update is bringing a corporation’s official record — directors, officers, shareholders, resolutions, share certificates — current to reflect a sale, right after closing. Buyers who acquire shares are relying on that record being accurate, and a stale or incomplete minute book is one of the more common problems found in diligence on the next sale.
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- Non-solicitation clauseA non-solicitation clause prevents a person from approaching a business’s customers, suppliers or employees for a defined period. It is narrower than a non-compete, because it restricts who someone may contact rather than whether they may work in the industry at all.
- NSC safety fitness certificateAn NSC safety fitness certificate confirms a commercial carrier meets the National Safety Code, the Canada-wide framework for trucking and bus safety that every province administers through its own system — CVOR in Ontario, for example. It reflects the carrier’s own compliance record, so a buyer generally cannot simply carry an existing rating over to a new operating entity.
- NovationNovation is the process of substituting a new party into an existing contract in place of one of the original parties, with the consent of everyone involved, so that the original party is fully released and the new party effectively steps into the same agreement in their place. It requires agreement from all sides, not just a transfer by the departing party.
- Non-disclosure agreement (NDA)A non-disclosure agreement is a contract in which a prospective buyer agrees to keep a seller’s confidential information private and to use it only to evaluate the purchase. It is the first document in almost every business sale, because a seller cannot show real financials to a stranger without one.
- Non-compete (restrictive covenant)A non-compete, or restrictive covenant, is the seller’s promise not to compete with the business they have just sold, for a defined time and within a defined area. Without one, a buyer has paid for goodwill the seller could immediately rebuild across the street.
- Normalization (normalized earnings)Normalization is the process of adjusting a business’s reported financial statements to remove items that don’t reflect how the business will actually perform going forward — one-time events, the owner’s personal expenses, or above- or below-market compensation. The result is normalized, or adjusted, earnings that buyers can compare across businesses on a like-for-like basis.
- Net working capitalNet working capital is a business’s current assets — cash, receivables, inventory — minus its current liabilities, such as payables and short-term debt. It measures the short-term operating cushion a business needs to keep running: paying suppliers, covering payroll, and carrying inventory or unpaid customer invoices before that cash comes back in.
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- Off-market listingAn off-market listing is a business for sale that is not publicly advertised on a marketplace or broker website. It is being marketed privately — often to a short list of buyers a broker or advisor already knows — rather than to the open market.
- OpcoAn opco, short for operating company, is the corporation that actually carries on a business — hiring staff, signing customer contracts and taking on operational risk. It is often paired with a separate holdco that owns the opco’s shares but keeps investments and surplus cash out of reach of the opco’s creditors.
- Organizational chartAn organizational chart maps who does what in the business and who reports to whom — roles, not just names, since the same person often holds several. In a small business acquisition it is one of the fastest documents to reveal where the operation actually depends on one or two individuals, and where it does not.
- Owner dependenceOwner dependence is the degree to which a business’s revenue, relationships or day-to-day operation rely on the current owner personally. The more a business depends on one person, the less of it actually transfers to a buyer — which is why heavily owner-dependent businesses sell at lower multiples, and sometimes do not sell at all.
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- Proprietary dealA proprietary deal is an acquisition opportunity a buyer finds and pursues directly — through their own outreach, network or a referral — rather than through a broadly marketed listing where other buyers are also bidding. At least at the outset, the buyer is negotiating without direct competition.
- Private equity buyerA private equity buyer is a firm that acquires businesses using capital pooled from institutional and high-net-worth investors, typically holding each investment for a fixed period — often three to seven years — before selling or recapitalizing it. It is a type of financial buyer, distinguished by its fund structure and defined exit timeline.
- Platform acquisitionA platform acquisition is the initial purchase an investor makes in a target industry, intended to serve as the operating base — management team, systems and brand — for further growth through add-on acquisitions. It is usually larger and more established than the add-ons that follow it.
- Proof of fundsProof of funds is documentation a buyer supplies to show they genuinely have access to the money needed to complete a purchase, whether from savings, a loan pre-approval, investor commitments or a government-backed financing program. Sellers and brokers commonly ask for it before granting access to sensitive information or entering exclusive negotiations.
- Purchase price adjustmentA purchase price adjustment is a mechanism in the definitive agreement that changes the final purchase price after closing, based on the difference between an estimate made at signing and the actual figures, most commonly working capital, measured shortly after the deal closes. It protects both sides against relying on numbers that turn out to be stale by closing day.
- PPSA registrationA PPSA registration is a public filing, made under a province’s Personal Property Security Act, that gives notice of a lender’s security interest in a company’s assets and establishes that lender’s priority against other creditors. Checking these filings is a standard step before buying a business or its assets.
- Promissory noteA promissory note is a written, signed promise by one party to pay a specific sum of money to another, on stated terms, by a stated date or schedule. In an SME acquisition it is most often the document that documents seller financing — turning a vendor take-back arrangement into an enforceable debt.
- Personal guaranteeA personal guarantee is a promise by an individual to repay a business debt personally if the business does not. It puts personal assets behind the loan, and it is a near-universal requirement in Canadian small business acquisition financing.
- Patient records transferPatient records belong to a regulated custodian, not to the practice itself, so ownership does not automatically pass in a sale. Patients generally must be notified of the change and given a chance to have their file sent elsewhere, and the buyer typically has to qualify as an eligible custodian before records change hands.
- Practice transitionA practice transition is the structured handover of a professional practice — medical, dental, veterinary, legal or accounting — from a retiring or departing practitioner to a successor. It typically unfolds over months or years and layers licensing, client continuity and regulatory notice on top of an ordinary asset or share sale.
- Pre-emptive rightA pre-emptive right is a shareholder’s right to be offered a proportional share of any new shares the company issues, before those shares are offered to an outsider, so an existing owner can maintain their percentage stake in the company. It protects against dilution from a share issuance the shareholder had no say in.
- Post-closing integrationPost-closing integration is the work of actually absorbing an acquired business after the deal closes — systems, staff, suppliers, banking and customer relationships. For a small business acquisition it is usually the buyer stepping into day-to-day operating control, and it is where most of the value of a deal is won or lost.
- Payroll transferA payroll transfer is moving employees onto the buyer’s payroll system as of closing — new payroll account, continuity of pay and deductions, and, in an asset sale, correctly treating employment as continuing rather than as a termination and rehire. Getting the mechanics wrong can trigger notice or severance obligations that a share sale would not create.
- Post-closing disputeA post-closing dispute is a disagreement that arises after a business sale has completed, commonly over a working capital true-up, an indemnity claim for breach of a representation, or an escrow release, resolved through whatever mechanism the purchase agreement specifies, from direct negotiation to arbitration or litigation. Most are contained by the agreement’s own terms rather than ending up in court.
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- Qualified small business corporation (QSBC) sharesQualified small business corporation shares are shares of a Canadian-controlled private corporation that meet specific tests about the corporation’s activities, the composition of its assets, and how long the shares have been held. Meeting the QSBC tests is what makes the lifetime capital gains exemption available on a share sale.
- Quality of earnings (QoE)Quality of earnings, or QoE, is an independent financial review that tests how accurate and sustainable a business’s reported earnings actually are, beyond what the financial statements show on their face. It checks whether reported profit is real, recurring, and properly supported — a step buyers commonly take before finalizing a deal, usually after signing a letter of intent.
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- Roll-upA roll-up is an acquisition strategy that combines multiple smaller businesses in a fragmented industry into a single, larger platform, aiming to gain scale, cut duplicated costs and command a higher valuation multiple than any of the individual businesses could achieve on their own.
- Right of first refusal (ROFR)A right of first refusal (ROFR) requires a shareholder who wants to sell their shares to first offer them to the other shareholders, or to the company, on the same price and terms an outside buyer proposed. Only if they decline can the shares be sold to the outsider.
- Reverse due diligenceReverse due diligence is the investigation a seller runs on a prospective buyer, checking their financial capacity, business background, and track record with past acquisitions or ventures, rather than the more familiar direction of a buyer investigating the business. Sellers use it to gauge whether a buyer can actually close and will treat staff and customers reasonably afterward.
- Revolving credit facilityA revolving credit facility is a loan arrangement that lets a business draw funds up to an approved limit, repay some or all of it, and draw again, rather than receiving a fixed lump sum that amortizes down to zero. It is the standard tool for funding day-to-day working capital swings rather than a one-time purchase.
- Restrictive covenantA restrictive covenant is the umbrella term for contractual promises restricting what a person can do after a deal closes — non-competition, non-solicitation and non-disparagement clauses are all restrictive covenants. In a business sale, they are what actually protects the goodwill the buyer just paid for.
- Representations and warrantiesRepresentations and warranties are statements of fact a seller makes in the purchase agreement about the business — that the financial statements are accurate, that taxes are filed, that there is no undisclosed litigation. If one proves untrue, the buyer has a contractual claim, usually backed by an indemnity.
- Revenue multipleA revenue multiple estimates a business’s value by multiplying its annual revenue by a factor drawn from comparable deals, rather than multiplying a profit measure like EBITDA or SDE. It suits fast-growing or thin-margin businesses — software, subscription, or e-commerce — where revenue is a more stable signal than current profit, but it ignores cost structure entirely.
- Rule-of-thumb valuationA rule-of-thumb valuation applies a simple, widely used formula for a given industry — commonly a multiple of annual revenue, SDE, or a per-unit metric like price per seat or price per customer — to arrive at a quick, rough estimate of value. It’s a fast starting point for a conversation, not a substitute for a full valuation.
- Recurring revenueRecurring revenue is income a business can reasonably expect to receive again from existing customers, without needing to win a brand-new sale each time — subscriptions, maintenance contracts, retainers, or repeat service agreements are common examples. Buyers generally value recurring revenue more highly than one-off sales because it’s more predictable.
- Revenue backlogRevenue backlog is the dollar value of confirmed orders or signed contracts that a business has not yet delivered or billed — work that’s committed but still ahead of it. It’s common in project-based businesses like construction, manufacturing, and professional services, where revenue is recognized only as the work is actually completed.
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- Search fundA search fund is an investment vehicle that raises capital from a small group of investors so an entrepreneur can search for, acquire and personally operate a single privately held business as CEO, typically in exchange for a modest search-phase salary and a meaningful equity stake once a deal closes.
- Strategic buyerA strategic buyer is an operating company that acquires a business to create synergy with its existing operations — new customers, products, geography or supply chain — rather than purely for financial return. Because those synergies can add value beyond the target’s standalone earnings, a strategic buyer can sometimes justify paying more than a purely financial one.
- Seller’s marketA seller’s market exists when demand from qualified buyers exceeds the supply of good-quality businesses for sale, giving sellers more leverage — stronger prices, fewer contingencies, and often several buyers competing for the same opportunity. A buyer’s market is the reverse: more listings than qualified demand, favouring buyer leverage instead.
- Succession buyerA succession buyer is someone who acquires a business primarily to solve an owner’s succession problem — typically a retiring owner with no family member or existing partner ready to take over — rather than to capture strategic synergy. The buyer can be an employee, a manager, an outside individual, or occasionally a family member from outside daily operations.
- Survival periodThe survival period is the window after closing during which a buyer may still bring a claim for breach of a representation or warranty. Once it expires, the representation stops providing any protection, however serious the breach turns out to be.
- Share purchase agreement (SPA)A share purchase agreement (SPA) is the contract buyers and sellers sign to transfer ownership of a company by selling its shares. The buyer takes over the corporation as-is, including its assets, contracts and liabilities, subject to whatever protections the SPA negotiates.
- Shareholder agreementA shareholder agreement is a private contract among some or all of a company’s shareholders. It sets out how decisions get made, how shares can be sold or transferred, what happens if a shareholder dies, retires or wants out, and how disputes between owners are resolved.
- Share classA share class is a defined category of shares in a corporation, each with its own combination of rights: whether it votes, whether it receives dividends, and what it is entitled to if the company is sold or wound up. A single corporation can have several classes with very different rights.
- Site visitA site visit is an in-person inspection of the business premises, equipment and operations, usually arranged once a buyer is far enough into due diligence to be seriously committed. It lets the buyer see the condition of assets, observe the business running, and confirm that reality matches what the financial and legal documents describe.
- Share saleA share sale is a transaction where the buyer purchases the shares of the corporation that carries on the business, acquiring the company whole — assets, contracts, and liabilities together. The business itself does not change hands; its ownership does.
- Successor employerA successor employer is a buyer who continues a business and, by operation of employment standards legislation, is treated as continuing the employment relationship rather than starting a new one. Employees carry their accumulated length of service across to the buyer even in an asset sale where they are technically rehired.
- Security interestA security interest is a proprietary right a lender holds in a borrower’s property, given as collateral for a debt, that lets the lender seize and sell that property if the debt is not repaid. It is the legal right created by a general security agreement and made public through PPSA registration.
- Sale-leasebackA sale-leaseback is a transaction in which an owner sells a real estate or equipment asset and, as part of the same deal, signs a lease to continue using it. It converts an owned asset into cash while keeping the operating business in place at the same premises or with the same equipment.
- Supply management quotaSupply management quota is the production right — most commonly for dairy, poultry or eggs — that lets a Canadian farm produce and sell a regulated volume under the national supply management system. Quota is administered and traded through provincial marketing boards, generally carries its own transfer rules and value, and often makes up a large share of a farm business’s worth.
- SR&ED creditsSR&ED credits are federal tax incentives administered by the CRA that reward businesses for eligible scientific research and experimental development work, and some provinces layer their own credits on top. Because eligibility depends on documentation and whether a claim would survive a CRA review, buyers generally treat SR&ED claims as a diligence item rather than a guaranteed asset.
- Source code escrowSource code escrow is an arrangement where a software company deposits its source code with an independent third party, who releases it to a licensee or buyer only if a defined trigger occurs, such as the vendor going out of business or failing to maintain the product. It protects the party relying on the software from being stranded if the vendor can’t deliver.
- Specific performanceSpecific performance is a remedy where a court orders a party to actually complete the transaction — close the sale, transfer the shares or assets — rather than simply pay money damages for breaching the agreement. Canadian courts grant it only when they decide damages would not adequately compensate the other side.
- SandbaggingSandbagging describes a buyer bringing an indemnity claim after closing for a breach of a representation or warranty that the buyer already knew about, or discovered during due diligence, before the deal closed. Whether that claim can still succeed depends on how — or whether — the purchase agreement addresses it.
- SeverabilityA severability clause states that if a court finds one provision of a contract unenforceable, the rest of the agreement remains in effect rather than the whole contract collapsing. It is a safety net that limits the damage from a single bad clause, and it is tested most often by an overreaching restrictive covenant.
- Shotgun clauseA shotgun clause is a buy-sell mechanism in a shareholder agreement where one owner offers to buy out the other at a price of their choosing, and the other owner must either sell at that price or turn around and buy the first owner out at the exact same price. It is one of the most common deadlock-breakers in a two-owner Canadian corporation.
- SeasonalitySeasonality is the predictable rise and fall in a business’s revenue, cash flow or staffing needs tied to the time of year — landscaping in summer, retail in December, tourism in peak months. A buyer needs numbers across a full cycle, not a snapshot, or a strong season gets mistaken for the business’s normal run rate.
- Supplier concentrationSupplier concentration is how much a business depends on one or a small number of suppliers for the inventory, materials or services it needs to run. It is the mirror image of customer concentration — the risk sits on the buying side instead of the selling side, and it can shut a business down just as fast if a key supplier walks away.
- Standard operating procedures (SOPs)Standard operating procedures, or SOPs, are written instructions for how the routine work of the business actually gets done — opening and closing steps, how a job is quoted, how a customer complaint is handled, how inventory gets ordered. They turn knowledge that would otherwise live in one person’s head into something a new owner or employee can pick up and follow.
- Staff turnoverStaff turnover is the rate at which employees leave a business and are replaced over a given period, usually expressed as a percentage of headcount per year. It is one of the more reliable early signals in due diligence, because turnover that is high, rising, or concentrated among long-tenured staff usually points to a problem the financial statements have not caught up to.
- Service level agreement (SLA)A service level agreement, or SLA, is a contract term that sets a specific, measurable performance standard a business promises a customer — a response time, an uptime percentage, a delivery window — along with what happens if it is not met. It turns a general promise of good service into an obligation the business can be held to.
- Supplier notificationSupplier notification is informing a business’s key vendors that ownership has changed, usually alongside confirming which contracts are actually assigning to the new owner and which need to be renegotiated or re-signed. Suppliers who are not told, or told too late, sometimes react by pausing shipments or demanding new terms.
- Succession planA succession plan is a documented plan for how ownership and leadership of a business will transfer — to a buyer, to family, or to management — including timing, valuation, funding and the handover of relationships and knowledge. It is planning done before a sale is urgent, which is what separates it from simply selling.
- Section 167 election (GST/HST)The section 167 election is a joint election filed by a buyer and seller that, where the conditions are met, allows the sale of a business or part of a business to proceed without GST/HST applying to the assets transferred. It is available on qualifying asset sales, and both parties must elect.
- Seller’s discretionary earnings (SDE)Seller’s discretionary earnings (SDE) is the total annual cash benefit a single owner-operator receives from a business, before financing and before their own compensation. It starts at net profit and adds back the owner’s salary, personal and one-time expenses, interest, depreciation and amortization.
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- Tag-along rightA tag-along right lets a minority shareholder join a sale that a majority shareholder is making, selling their own shares to the same buyer on the same price and terms instead of being left behind as a minority owner in whatever remains of the company.
- Transition periodA transition period is the stretch of time after closing during which the outgoing owner stays involved to introduce the buyer to customers and suppliers, train staff on how the business runs, and answer questions as the new owner takes over. Its length, scope and any pay for the outgoing owner are usually negotiated as part of the definitive agreement.
- Term sheetA term sheet is a short document setting out a lender’s proposed principal terms for a loan — amount, pricing basis, security, covenants and key conditions — before the full legal loan agreement is drafted. It is meant to get both sides aligned on the substance of the deal while the terms are still relatively easy to change.
- TeaserA teaser is a one- or two-page anonymised summary of a business for sale, circulated to prospective buyers before any confidentiality agreement is signed. Its only job is to let a buyer decide whether the opportunity is worth signing an NDA to learn more.
- Transition services agreement (TSA)A transition services agreement is a separate contract, signed alongside the purchase agreement, in which the seller agrees to keep providing specific support — bookkeeping, IT, a key relationship, use of a shared system — for a defined period after closing. It exists because some functions cannot simply be handed over on closing day.
- The first ninety daysThe first ninety days is the informal term for the early stretch after a buyer takes over a business, when staff, customers and suppliers are all watching for signs of what has actually changed. It is not a legal deadline, it is simply the window in which most of the relationships a buyer paid for are either kept or lost.
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- Unanimous shareholder agreement (USA)A unanimous shareholder agreement (USA) is signed by every shareholder of a company and can restrict or remove the powers directors would otherwise have, transferring those powers and responsibilities to the shareholders instead. It is a more formal tool than a regular shareholder agreement, with effects set out in corporate statutes.
- Utility account transferA utility account transfer is closing out the seller’s electricity, gas, water, phone, internet and waste accounts and opening equivalents in the buyer’s name, timed to the closing date so a location is never left without service or double-billed. It is a small task with an outsized ability to derail the first day of ownership.
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- Vendor take-back (VTB)A vendor take-back, or VTB, is financing provided by the seller: instead of receiving the full price at closing, the seller is paid a portion over time under a promissory note. It is one of the most common ways a Canadian small business deal bridges the gap between what a buyer has and what a bank will lend.
- Vendor contractsVendor contracts are the agreements a business has with the suppliers it depends on for inventory, materials, equipment or services. Whether one survives a sale is a question of wording, not assumption — many contracts require the supplier’s consent to assign, or end automatically the moment ownership of the business changes.
- Valuation gapA valuation gap is the difference between the price a seller expects for their business and the price buyers in the market are actually willing to pay. It’s one of the most common reasons a listing sits unsold, and it usually narrows only once one or both sides adjust their expectations based on real market feedback.
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- Working capital pegA working capital peg is an agreed target level of working capital — receivables, inventory and prepaid expenses, less payables — that must be in the business on closing day. If actual working capital lands above or below the peg, the purchase price is adjusted after closing to make up the difference.
- WSIB clearance certificateA clearance certificate is confirmation from a workers’ compensation board that a business is registered and current on its premiums and reporting. Obtaining a valid clearance protects the party relying on it from being held liable for the other party’s unpaid premiums for the certificate’s validity period.
- Work in progress (WIP)Work in progress, or WIP, is the value of services or products a business has started but not yet billed to the client at the time of a sale. Because it sits between completed inventory and recognized revenue, buyers and sellers usually negotiate separately how WIP is valued and who is entitled to collect on it after closing.
- Working capital cycleThe working capital cycle is the time between paying for inventory or labour and collecting cash from the customer — inventory days plus receivable days, minus the days suppliers give you to pay. A longer cycle means more cash is tied up running the business day to day, which is what a working capital peg in a purchase agreement is meant to cover.
- Working capital true-upA working capital true-up is the post-closing calculation that compares actual working capital on closing day against the target set in the purchase agreement, resulting in a payment between buyer and seller for the difference. It is usually the single largest source of post-closing money changing hands outside the original purchase price.
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