The Modern Acquirer Glossary
Essential terms from The Modern Acquirer guides, each defined in plain language with the evidence behind it.
Diligence
Accounts Receivable
Accounts receivable means money customers owe for goods or services already billed, whose value depends on what the business ultimately collects.
Add-Backs
Add-backs are proposed adjustments that add expenses to reported earnings, requiring support for why those costs would not remain necessary under a new owner.
Customer Concentration
Customer concentration describes dependence on a narrow customer base, which can leave a business exposed when important buyers reduce their spending.
Due Diligence
Due diligence investigates what a small business buyer would acquire, testing seller claims and identifying uncertainties that need further specialist review.
Key Person Risk
Key person risk is the risk that a business cannot keep operating as expected when someone with essential knowledge or relationships leaves.
Owner Dependence
Owner dependence is a business's reliance on the seller's work, judgment, and relationships to serve customers and keep daily operations running.
Proof of Cash
Proof of cash compares a business’s financial records with bank receipts and payments to investigate differences and clarify the limits of financial support.
Quality of Earnings
Quality of earnings is a financial review that tests the support for reported business earnings and proposed adjustments, with limits set by its agreed scope.
Repeat Revenue
Repeat revenue comes from customers returning for additional purchases, without implying a fixed buying schedule or a commitment to purchase again.
Revenue Quality
Revenue quality describes how well sales are supported by records and how customer continuity and selling capability affect their durability after a purchase.
Transition Plan
A transition plan connects what a buyer learns during diligence with the responsibilities, handoffs, and unresolved questions of taking ownership.
Working Capital
Working capital is current assets minus current liabilities: receivables and inventory add to it, while payables reduce it.
Sourcing
Confidential Information Memorandum
A confidential information memorandum is a private business-sale presentation that helps a buyer understand the opportunity without verifying its claims.
Letter of Intent
A letter of intent sets out a proposed business acquisition so buyer and seller can discuss the purchase with a clear account of the buyer’s intentions.
Proprietary Deal Flow
Proprietary deal flow means acquisition opportunities arising through a buyer’s own relationships and direct conversations, without assured exclusivity.
Financing
Equity Injection
An equity injection is capital contributed toward buying a business, distinct from acquisition borrowing and cash kept available for operating needs.
Seller Note
A seller note is a written debt obligation that defers part of a business purchase payment, leaving the buyer responsible for repayment to the seller.