Guides · Glossary
Glossary of business sale terms
Plain-language definitions of the words you'll hear when selling or buying a business in Canada.
- Add-backs
- Expenses a business pays that a new owner wouldn't have, such as the owner's personal expenses or one-time costs. They're added back to profit when working out SDE or EBITDA, so they must be real and provable. How small businesses are valued →
- Asset sale
- A sale where the buyer buys selected assets of the business, such as equipment, inventory, customer lists and goodwill, rather than the company itself. The seller's company usually keeps liabilities the buyer doesn't take. Asset sale vs share sale →
- BDC
- The Business Development Bank of Canada, a federal Crown corporation that lends to Canadian businesses, including to buyers of businesses. Financing a business purchase →
- Blind listing
- A business-for-sale listing that describes the business without identifying it, typically showing only the industry, region and size. Details are shared only with buyers who sign an NDA. Selling confidentially →
- Business broker
- A professional who markets a business for sale, finds and screens buyers, and manages the process, usually for a success fee based on the sale price. Do you need a business broker? →
- Canada Small Business Financing Program (CSBFP)
- A federal program that shares the risk of certain small business loans with participating banks and credit unions, making it easier for them to lend for eligible costs such as equipment and leasehold improvements. Financing a business purchase →
- Chartered Business Valuator (CBV)
- A Canadian professional designation for business valuation specialists. A CBV prepares formal valuations that can be relied on for legal, tax and dispute purposes.
- Closing
- The day the sale is completed: the purchase price is paid, usually through the lawyers' trust accounts, and ownership passes to the buyer.
- Data room
- A secure online folder where a seller shares documents with a buyer during due diligence, with control over who can see what.
- Due diligence
- The buyer's detailed check of the business before closing: financial records, tax filings, contracts, the lease, employees, permits and legal issues. It usually takes 30 to 90 days. Due diligence checklist →
- Earn-out
- Part of the purchase price that's paid only if the business reaches agreed targets after the sale, such as revenue or profit. Used when buyer and seller disagree on value.
- EBITDA
- Earnings before interest, taxes, depreciation and amortization. A measure of profit used to value larger businesses that have a management team, multiplied by an industry multiple. How small businesses are valued →
- Employee ownership trust (EOT)
- A trust that buys and holds a business on behalf of its employees. Available in Canada since 2024, with a temporary capital gains exemption for qualifying sales. Selling to employees or family →
- Goodwill
- The part of a business's value that comes from its reputation, customer relationships, brand and earning power, beyond its physical assets.
- Holdback
- Part of the purchase price held back, often in escrow, for a set time after closing to cover possible claims against the seller.
- Indemnity
- A seller's promise in the purchase agreement to compensate the buyer if certain statements about the business turn out to be wrong, or certain problems arise after closing.
- Letter of intent (LOI)
- A document setting out the main terms of a proposed sale, such as price, structure, financing, due diligence period and conditions. Mostly not legally binding, but it frames the final agreement. How to sell a small business →
- Lifetime capital gains exemption (LCGE)
- A Canadian tax exemption that can shelter part of the capital gain on selling qualified small business corporation shares. It generally doesn't apply when a company sells its assets. Asset sale vs share sale →
- Multiple
- The number that earnings (SDE or EBITDA) are multiplied by to estimate a business's value. It reflects the industry and how risky and transferable the earnings are. How small businesses are valued →
- Non-disclosure agreement (NDA)
- A contract where a buyer agrees to keep a seller's information confidential and use it only to evaluate the purchase. Selling confidentially →
- Purchase agreement
- The final, legally binding contract for the sale of a business, prepared by the lawyers, setting out the price, what's included, representations and warranties, and closing conditions.
- Representations and warranties
- Written statements by the seller in the purchase agreement about the business's condition, such as that taxes are filed and there are no undisclosed lawsuits.
- Section 167 election
- A joint election under the GST/HST rules that can let a buyer and seller transfer a business's assets without charging GST/HST, when the buyer acquires all or substantially all of the property needed to carry on the business. Asset sale vs share sale →
- Seller's discretionary earnings (SDE)
- Profit before tax plus the owner's pay and benefits, interest, depreciation and other add-backs. It shows what a business earns for one full-time owner, and is the main measure for valuing owner-operated businesses. How small businesses are valued →
- Subordination
- An agreement that one lender is repaid only after another. Sellers who provide vendor financing are usually asked to subordinate their loan to the bank's.
- Vendor take-back (VTB)
- Financing where the seller lets the buyer pay part of the price over time, with interest. Also called vendor or seller financing. Vendor take-back financing →
- Working capital
- The money a business needs to run day to day, generally current assets such as inventory and receivables minus current liabilities. Purchase agreements often set a working capital level the business must have at closing.
These definitions are general information, not legal, tax or financial advice.