Key Business Sale Terms Every Arizona Owner Should Know
- calljohncox
- Jun 2, 2025
- 4 min read
Updated: Dec 19, 2025
Business Brokerage Glossary from Cox Business Brokers AZ 📞 480-235-7911
Whether you're selling a business in Arizona or considering buying one, understanding the terminology used throughout the process is essential. Brokers, lenders, and attorneys use specific financial and legal language, and knowing these terms helps you:
Make informed decisions
Ask the right questions
Understand your valuation
Communicate confidently with buyers and advisors
Below is a clear, plain-English glossary of the most important terms you’ll encounter when selling or purchasing a business in Arizona—explained by the team at Cox Business Brokers AZ.
Financial Terms Every Seller and Buyer Should Understand
Seller’s Discretionary Earnings (SDE)
Also known as Discretionary Earnings, Owner’s Benefit, or Cash Flow, this is the core number used for valuing small and mid-sized businesses.
SDE = Net Profit + Owner Salary + Add-Backs. It represents the total financial return available to a new owner.
Add-Backs
Add-backs are personal, one-time, or non-essential expenses that a new owner won’t inherit. Examples include:
Owner’s vehicle
Personal travel
Family members on payroll
One-time legal fees
Owner’s health insurance
Removing these items helps reveal the true earning power of the business.
EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)
EBITDA is used for valuing larger companies or businesses with strong infrastructure. It reflects operating profitability before financing and non-cash expenses.
Formula: Net Income + Interest + Taxes + Depreciation + Amortization
Buyers, lenders, and private equity groups rely heavily on EBITDA when comparing companies.
Gross Revenue vs. Net Revenue
Gross Revenue
Total sales before refunds or discounts.
Net Revenue
Revenue remaining after subtracting discounts, refunds, or adjustments.
Net revenue gives a clearer picture of real income retained by the business.
Gross Profit vs. Net Profit
Gross Profit
Revenue – Cost of Goods Sold (COGS).
Net Profit
Gross Profit – Operating Expenses (labor, rent, marketing, insurance, etc.)
Net profit is the strongest indicator of bottom-line performance.
Key Terms Used During a Business Sale
Due Diligence
The buyer’s in-depth review of financials, contracts, leases, payroll, legal history, and operations.It typically begins after a signed LOI and includes:
Tax returns
P&Ls and balance sheets
Bank statements
Lease agreements
Customer and vendor contracts
Equipment lists
Tip: Don’t engage accountants or attorneys until an LOI is signed.
Letter of Intent (LOI)
The LOI outlines proposed purchase terms including:
Price
Structure
Seller financing
Timeline
Contingencies
While many LOIs are non-binding, some may include binding provisions depending on the deal. In all cases, the LOI outlines the agreed-upon terms and is typically required before due diligence begins.
Multiple (Valuation Multiple)
A valuation metric comparing price to earnings.
Example (purely illustrative): A business priced at $3,000,000 with SDE of $1,000,000 could reflect a 3× multiple — but actual multiples can be higher or lower depending on many factors.
Multiples vary based on:
Industry
Size
Growth potential
Deal structure
SBA loan eligibility
Market demand
Non-Disclosure Agreement (NDA)
A legally binding document required before sharing confidential business information.It protects:
Customer lists
Pricing
Employee details
Supplier relationships
Trade secrets
No buyer should receive sensitive information without an NDA.
Valuation & Deal Structure Terms
Opinion of Value vs. Business Appraisal
Opinion of Value
A broker-prepared estimate based on:
Market trends
Financial recasting
Comparable sales
Buyer demand
Business Appraisal
A business appraisal is a formal valuation performed by a qualified, credentialed professional—often someone holding designations such as CVA (Certified Valuation Analyst), ASA (Accredited Senior Appraiser), or ABV (Accredited in Business Valuation). In Arizona, lenders, attorneys, and courts may require a certified appraisal for legal, tax, financing, or litigation purposes.
Owner (Seller) Financing
The seller finances a portion of the purchase through a promissory note.
Benefits include:
More qualified buyers
Faster sales
Higher price potential
For SBA loans, any seller financing must remain on full standby for at least 24 months, and some lenders may require a longer standby period depending on the structure of the deal.
Private Equity (PE)
PE firms invest in or acquire companies, typically those with:
Strong management
Proven cash flow
Scalability
A private equity buyer may offer a higher value if the business fits their portfolio.
Frequently Asked Questions
What financial terms do buyers care about most?
SDE, EBITDA, gross profit, net profit, and cash flow trends.
What documents do I need before selling?
3 years of tax returns, current P&L, balance sheet, equipment list, and lease details.
Do I need an appraisal?
Not always. For business-only transactions, an Opinion of Value is typically sufficient unless a lender or legal situation requires a formal appraisal. However, when a sale includes commercial real estate, lenders will almost always require a certified real estate appraisal during the financing process. In some cases, it can also be helpful to obtain a real estate appraisal before listing so the seller has strong support for the asking price and greater confidence when discussing value with buyers.
Why are add-backs important?
They maximize your valuation by showing true earnings.
When does due diligence happen?
After signing the LOI and agreeing on preliminary terms.
Need Help Understanding These Terms? Let’s Talk.
Knowing these terms gives you a major advantage as you prepare to sell or buy a business.
Learn more about our Sell a Business process or request a Business Valuation to get a clear understanding of your company’s market value.
As an experienced Business Broker in Phoenix, we guide Arizona owners and buyers through every step of the transaction—confidentially and professionally.
📞 Call 480-235-7911 to schedule a confidential consultation today.
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