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ETA Glossary
Plain-English definitions for the acquisition and financing terms used throughout the site, from SDE and EBITDA to seller notes and take rate.
- Accounts receivable (receivables)
- Money customers owe the business for goods or services already delivered but not yet paid for. Buyers check the typical receivables balance and how quickly it collects, since a working capital target set too low can leave the new owner short on cash even though the business is profitable on paper.
- AcquiringPreneur
- Someone who does ETA: a person who buys and runs a business alone or with a partner, without a firm or fund behind them, doing the underwriting work of an investor and the operating work of a founder. Not an industry term - we made this term up for this website.
- Ad networks
- Companies (like Google AdSense, Mediavine, or Ezoic) that place display ads on a site on a publisher's behalf, selling that ad space to advertisers and paying the site owner a share of the revenue. A content site typically applies to join one once it has enough traffic to qualify.
- Addbacks
- Expenses on a business's books that a buyer adds back to net profit to calculate SDE or EBITDA, because a new owner wouldn't necessarily incur them: the current owner's salary, personal expenses run through the business (a car, travel, family on payroll), one-time costs, and non-cash expenses like depreciation. Legitimate addbacks reveal the business's real earning power; inflated or unsupported ones are a common way sellers overstate SDE, which is why a quality of earnings review scrutinizes them line by line.
- Affiliate commissions
- Payments a content site earns for referring a purchase or sign-up to another company, typically a percentage of the sale or a flat fee per lead. Paid through an affiliate program the site owner applies to and tracks via referral links.
- Affiliate programs
- Programs run by a company that pay a site owner a commission for referring a sale or sign-up, tracked through a unique referral link. A content site typically joins several affiliate programs relevant to its topic rather than relying on just one.
- Annual Recurring Revenue (ARR)
- Monthly recurring revenue annualized. Commonly used as the basis for valuing subscription (SaaS) businesses, which are often priced as a multiple of ARR.
- Asset purchase vs. entity purchase
- The two basic ways to structure an acquisition. An asset purchase buys specific assets and liabilities of a business; an entity purchase buys the legal entity itself, liabilities included. The choice affects taxes, liability exposure, and how an SBA loan gets underwritten.
- Balance sheet
- A snapshot, as of one specific date, of what a business owns (assets), what it owes (liabilities), and what's left for the owner (equity). Assets always equal liabilities plus equity.
- Business broker
- An intermediary who represents a seller, pre-vetting and packaging a business for sale and running the sale process on the seller's behalf. Curated brokerages typically check a seller's financials before listing; self-serve marketplaces put more of that screening burden on the buyer.
- Cash flow
- The actual money moving in and out of a business over a given period, as distinct from paper profit. A business can show a profit on its P&L while still running short on cash, which is why lenders and buyers underwrite cash flow directly rather than relying on reported earnings alone.
- Cash flow statement
- A statement tracking whether cash is actually moving in and out of a business, since a business can be profitable on paper while still running short on cash if customers are slow to pay.
- Churn
- The rate at which customers cancel or stop paying. The single number that most determines whether a subscription business grows or shrinks, since new revenue has to outpace what churn takes away just to stand still.
- Cost of Goods Sold (COGS)
- The direct cost of producing or acquiring the products a business sells. A real, physical cost behind every e-commerce sale, but close to zero for a content site or SaaS product.
- Customer (or traffic) concentration
- How much of a business's revenue or traffic depends on a small number of customers, one channel, or one search ranking. Heavy concentration is a red flag that pulls a business's valuation multiple down, since losing that one thing could gut its earnings.
- Customer Acquisition Cost (CAC)
- The average amount spent on advertising and marketing to acquire one paying customer, calculated by dividing total acquisition spend over a period by the number of new customers it generated. A business is only healthy if CAC stays comfortably below what that customer is worth over time, so it's almost always read alongside customer lifetime value rather than on its own.
- Deferred revenue
- Money a business has already collected for something it hasn't delivered yet, recorded as a liability until it's earned. Common in subscription (SaaS) businesses.
- Direct-to-Consumer (DTC)
- A business that owns its own brand and sells straight to customers, usually through its own site, instead of going through wholesalers or retailers. A DTC brand can still use any fulfillment model, dropshipping, self-distribution, or a 3PL, to actually get orders to customers.
- Display ads
- Banner, image, or video ads placed on a site through an ad network (like Google AdSense or a premium ad management partner), paying the site owner per impression or per click on visitor traffic. A core revenue source for content sites, usually alongside affiliate commissions.
- Due diligence
- The investigation a buyer runs on a business before closing, verifying that its financials, operations, and risks are what the seller represented. Typically runs during the exclusivity period after a letter of intent is signed.
- Earnout
- A portion of the purchase price paid contingent on the business's future performance after closing, rather than upfront. Shifts some risk from the buyer to the seller and can be used to bridge a gap in agreed valuation.
- EBITDA
- Earnings before interest, taxes, depreciation, and amortization. Used instead of SDE to value larger businesses that could support a paid, non-owner manager rather than a single owner-operator.
- Entrepreneurship Through Acquisition (ETA)
- The practice of buying an existing business, usually a small, profitable one, and running it yourself instead of starting one from scratch. It sits between investing and entrepreneurship: you underwrite the deal like an investor, then operate the business like a founder.
- Equity injection
- The buyer's own cash contribution to an acquisition, on top of the loan. Under U.S. SBA 7(a) rules it's typically around 10% of the purchase price (more if the deal relies heavily on intangible assets as collateral). Conventional bank loans without that kind of government guarantee often require more.
- Exclusivity period
- The window, usually set in the letter of intent, during which the seller agrees not to shop the business to other buyers while the buyer runs due diligence. Commonly 30 to 90 days.
- Full standby
- A seller note structured with no payments for a set period, required for the note to count toward the buyer's required equity injection on an SBA 7(a) loan in the U.S. Under current SBA rules, that standby period runs the full length of the SBA loan (commonly 10 years), and a seller note can only cover up to half of the required equity injection. Equivalent programs elsewhere set their own rules.
- Gross Merchandise Sales (GMS)
- The total dollar value of transactions flowing through a marketplace, before the marketplace's own take rate is subtracted. Marketplace revenue equals GMS multiplied by the take rate.
- Holdback / escrow
- A portion of the purchase price held back for a period after closing to cover post-closing surprises, like a customer refund spike or an undisclosed liability.
- Independent sponsor
- A buyer who sources and negotiates a deal without a committed fund behind it, then lines up capital (investors, lenders, or both) deal by deal rather than raising a fixed pool up front. Gives more flexibility than a traditional search fund, at the cost of less certainty that capital will be there for any given deal.
- Letter of Intent (LOI)
- The document that turns a negotiation into a real deal: price, structure, and terms, mostly non-binding, alongside a handful of sections (confidentiality, exclusivity) that do bind both parties from signature. It's common for a real share of an LOI's terms to shift once diligence findings land.
- Margin (profit margin)
- Profit expressed as a percentage of revenue, showing how much of every dollar of sales actually turns into profit. Two businesses with identical profit can carry very different risk if one runs on a much thinner margin than the other, since a small revenue dip wipes out far more of a thin-margin business's profit.
- Mergers and acquisitions (M&A)
- The broad category of deals in which companies are bought, sold, or combined, spanning everything from public megadeals to a single searcher buying a small online business. ETA is M&A at the smallest end of that spectrum.
- Monthly Recurring Revenue (MRR)
- The predictable revenue a subscription business (typically SaaS) collects each month from active subscribers, watched alongside churn as the core health metric of the business.
- Multiple (valuation multiple)
- The number a business's price is quoted as relative to its earnings (SDE or EBITDA), rather than a flat dollar figure. A business with $300,000 in SDE at a 2.5x multiple is roughly a $750,000 deal. Multiples rise with deal size and vary by business model and risk.
- Net profit (net income)
- The bottom-line profit on a business's income statement: revenue minus COGS, marketing, operating costs, and every other cost of running the business, including interest, taxes, and depreciation. It's an accounting figure, not a valuation figure: buyers of small businesses look past it to SDE, which adds addbacks (like the owner's salary and personal expenses) back in, because net profit alone understates what the business would actually pay a new owner-operator.
- Non-compete
- A contract term restricting how long and how broadly a seller can start or join a business that competes with the one they just sold.
- Off-market sourcing
- Finding an acquisition target directly, before it's listed with a broker, usually through direct outreach, referrals, or a searcher's own network. Trades a slower, higher-effort search for less competition and more room to negotiate.
- Owner dependence
- How much a business relies on its current owner personally to keep running, whether for sales relationships, technical knowledge, or day-to-day decisions. A business that runs fine without the owner in the building every day commands a higher multiple than one that would fall apart without them.
- Personal guarantee
- A buyer's personal commitment to repay an acquisition loan if the business can't, putting personal assets at risk. Almost always required on a bank-financed acquisition, including an SBA 7(a) loan in the U.S., regardless of how little cash the buyer puts in.
- Private equity (PE)
- Firms that pool investor capital to buy companies, typically using debt alongside that capital, with the goal of improving and reselling them within a few years. ETA runs on the same underwriting-plus-operating logic as PE, scaled down to a business one person can buy and run without a firm behind them.
- Product-market fit (PMF)
- The point at which a product or service reliably satisfies real demand in a market, evidenced by customers paying for it and sticking around. Startups spend most of their early life searching for PMF; buying an existing, profitable business means acquiring a business that has already found it.
- Profit and loss statement (P&L / income statement)
- A statement covering a period of time that shows revenue minus expenses over that stretch, answering whether the business made money recently. Distinct from a balance sheet, which is a snapshot of what the business owns and owes on one specific day.
- Quality of Earnings (QoE) report
- A diligence report that rebuilds a business's real, recurring, cash-backed earnings from source data (bank statements, payment processor records, platform data) instead of trusting the seller's own summary. Checks revenue verification, addback scrutiny, concentration, trend, and off-book liabilities.
- Recurring revenue
- Revenue a business collects repeatedly from the same customer over time, typically through a subscription, rather than once per customer through a one-time sale. Recurring revenue is what makes SaaS valuations predictable and is usually tracked as MRR or ARR.
- Return on Ad Spend (ROAS)
- Revenue generated per dollar of advertising spend, used to judge whether paid customer acquisition is actually profitable. Worth tracking as a trend over 12-24 months rather than a single recent month.
- Revenue
- The total money a business brings in from sales before any costs are subtracted. On its own it says nothing about how much of it is actually profit, which is why revenue is always read alongside margin.
- SBA 7(a) loan
- The Small Business Administration loan program most commonly used to finance small business acquisitions in the U.S. Lenders underwrite the target business's cash flow, and the loan almost always requires a personal guarantee from the buyer. Once hard to get for online businesses, it's become a viable option for ecommerce, SaaS, content, and Amazon FBA acquisitions as more lenders have gotten comfortable underwriting digital assets, though only a subset of SBA banks actually have appetite for online deals, so buyers typically need to find one of the lenders who specialize in it rather than any random SBA bank.
- Search fund
- A traditional ETA path where a searcher raises money from a small group of investors up front to cover a 1-2 year search salary and expenses, in exchange for equity in whatever business they eventually buy. Trades a larger personal equity stake for a salary, an investor group, and a well-worn process.
- Search rankings
- The position a page holds in a search engine's results for a given search term, which largely determines how much organic traffic it gets, since most searchers click one of the first few results. A Google algorithm update can move a page's rankings, and its traffic, overnight.
- Self-funded search
- An ETA path where the searcher covers their own search costs and finances the eventual acquisition with a mix of debt (often an SBA 7(a) loan) and equity, rather than raising a dedicated search fund. Keeps far more ownership, at the cost of more personal risk during an unpaid search phase.
- Seller financing (seller note)
- Financing where the seller acts as a lender for part of the purchase price, getting paid over time instead of entirely at closing. Seller notes commonly run 5-20% of the purchase price and are usually subordinated to a bank loan.
- Seller's Discretionary Earnings (SDE)
- Net profit plus addbacks, used to value smaller businesses that assume a single owner-operator. SDE exists because owners of small businesses pay themselves inconsistently (some take a big salary, some take almost none and run personal expenses through the company), which makes net profit alone useless for comparing one small business to another. Adding addbacks back estimates the total cash a new owner-operator could actually take home. The purchase price is typically quoted as a multiple of SDE.
- Small and medium-sized business (SMB)
- A privately held business below the scale of large or public companies, roughly a few employees up to a few hundred. Most ETA targets, online or brick-and-mortar, fall in this range. SME ("small and medium-sized enterprise") is the same concept under a different, more common outside the US, label.
- Stock Keeping Unit (SKU)
- A unique code a business assigns to each distinct product or product variant it sells, used to track inventory and sales at that level of detail. Asking for revenue broken out by SKU is how you find out whether a store's sales are spread across many products or dangerously concentrated in one.
- Take rate
- The share of transaction value a marketplace keeps as revenue, expressed as a percentage of gross merchandise sales. The core lever of a marketplace's business model, since it funds everything the marketplace does for both sides of a transaction.
- Third-Party Logistics (3PL)
- An outside company that handles warehousing, packing, and shipping on behalf of an e-commerce business, reducing the physical fulfillment workload but not the inventory-planning and cash-flow skill it still requires.
- Traffic
- The visitors who land on a website, from whatever source: search engines, social media, direct visits, or referral links from other sites. A content site's revenue rises and falls with its traffic, since both display ads and affiliate commissions are paid per visitor action.
- Vetting
- The lighter, earlier-stage screening a broker or marketplace does on a seller and their numbers before a listing goes live, checking that the basics (identity, financials, ownership) hold up. It's not a substitute for due diligence: vetting is done by a third party before you're even looking at the deal, is far less rigorous, and doesn't replace the buyer's own investigation once an offer is on the table.
- Working capital
- The cash, inventory, or prepaid expenses a seller needs to leave in the business at closing so it can keep operating. The working capital target effectively adjusts the real price of a deal in either direction.
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