Buying-a-business terms, without the finance-speak.

Think of the asking price as the seller's opening number, not a professionally certified value. Before comparing deals, find out what comes with it. Does the price include inventory, equipment, vehicles, customer deposits, or real estate? A $400,000 car wash with land included is a very different deal from a $400,000 car wash where you still have to lease the property. Closing costs, working capital, and financing fees usually sit on top of this number.

Annual revenue is the business's total sales for the year—the top line on the income statement. It tells you how much activity runs through the business, but not how much money is left. A car wash can collect $100,000 and still produce very little owner benefit after utilities, chemicals, payroll, repairs, insurance, rent, and taxes. Revenue measures size; profit and SDE help explain what the business actually produces.

SDE stands for Seller's Discretionary Earnings and is sometimes called “cash flow” in a listing. Think of it as the seller saying, “Here is the total financial benefit this business produced for one working owner before the buyer's new loan payments.” It is not just the owner's paycheck. Suppose the business reports $20,000 of profit after paying the owner a $30,000 salary and also had a valid $5,000 one-time expense. The broker may claim $55,000 of SDE: $20,000 profit + $30,000 owner pay + $5,000 add-back. That still does not mean you can safely pocket $55,000. Your loan payments, taxes, future repairs, reinvestment, and any questionable add-backs come out of the picture. Ask for the actual SDE worksheet and make sure it agrees with the tax returns and financial statements.

This is not a place to total all of the business's historical repairs, taxes, insurance, utilities, or payroll. Those normal operating expenses should already have reduced the profit used to calculate SDE. Use this field only for recurring costs the seller omitted or costs that will change after you buy—for example, hiring a manager to replace the working owner, increased insurance, higher rent, new software, or maintenance you believe is understated. In the car-wash example, do not enter $20,000 of historical repairs and insurance again if those costs are already in the financial statements. But if the seller's SDE ignores $20,000 of repairs that are genuinely required every year, enter it here. Acquisition Quest would then reduce $50,000 of reported SDE to $30,000 before acquisition-loan payments.

Buying the business is not the only check you may write. Lawyers, accountants, lenders, appraisers, inspectors, licensing agencies, and other professionals may all be involved. A real-estate component can add environmental or property reviews. Acquisition Quest uses 2% of the asking price as a rough early placeholder when you need somewhere to begin, but that is not a quote. Replace it with real estimates as the deal becomes serious.

Working capital is the “keep the lights on” money available after you close. It is separate from revenue, SDE, and yearly expenses. For a car wash, it could help cover water, electricity, soap, payroll, insurance, a routine repair, or a rainy month before enough new cash comes in. In formal accounting, working capital compares current assets with current liabilities. For acquisition planning, do not simply subtract SDE from revenue and call the remainder working capital. Look at monthly bills, when customers pay, busy and slow seasons, cash already in the business, and near-term obligations with your lender and accountant.

This is the chunk of the purchase price you hope a bank will fund. Acquisition Quest starts at 80% so you have a reasonable scenario to test, but the lender can offer more, offer less, or decline the deal. The bank will look at you, the business, cash flow, collateral, and the complete transaction. One common point of confusion: an SBA-backed loan still comes from a participating lender, not directly from SBA. The percentage SBA guarantees for the lender is not the percentage of the purchase price the bank will finance for you.

Seller financing can reduce the amount you need from the bank or from your own pocket at closing. For example, on a $400,000 purchase, a 10% seller note means the seller receives $40,000 through future payments instead of receiving it all on closing day. That 10% is only an Acquisition Quest starting assumption—the seller can say no, offer more, or negotiate different terms. Your bank may also require the seller to wait before receiving payments. Put every promise in a properly prepared note; a handshake is not a financing plan.

Acquisition Quest starts at 10.5% because the calculator needs a number, not because that is “the SBA rate.” There is no single rate every buyer receives. Your rate is negotiated with the lender, may move over time if it is variable, and is subject to SBA maximums. Before you trust the payment, ask the lender: Is the rate fixed or variable? If it is variable, what makes it change, how often can it change, and what would the payment be if rates rise?

The term is how long you have to repay the loan. Acquisition Quest starts at 10 years because that is a practical planning term for many SBA-backed business acquisitions. A shorter term means larger monthly payments but usually less total interest. A longer term lowers the monthly payment but keeps you in debt longer. Eligible real estate or long-lived equipment can sometimes support a longer maturity, but the lender decides the actual structure.

The seller is acting a little like a bank, so they may charge interest while they wait for their money. Acquisition Quest starts at 6% to give you a scenario—not because 6% is a standard deal. A seller taking more risk may want a higher rate or stronger protections. Your bank may also restrict payments to the seller. Make sure the bank permits the structure and have legal and tax professionals review the note.

This is how long the seller gives you to repay their note. Acquisition Quest starts at five years because we need a workable example, not because five years is universal. Watch for a balloon: the monthly payment may look as if the note lasts ten years, but the remaining balance could become due after five. Ask when the final dollar is due, whether you can pay early without a penalty, and whether the bank requires the seller to wait before receiving payments.

With interest-only payments, you pay the cost of borrowing without paying down the original balance. It can create breathing room early on, but it can also create a nasty surprise later. If you borrow $40,000 and make interest-only payments, you may still owe the full $40,000 when that period ends. Ask exactly when principal payments begin and whether a balloon payment—the remaining balance due all at once—is waiting at the end.

DSCR is lender language for a simple question: after adjusting the seller's numbers, can this business comfortably pay the debt? A 1.25× result means the model shows $1.25 available for every $1.00 of annual loan payments. The extra 25 cents is the cushion for mistakes or a softer year. A 1.00× result means every modeled dollar is spoken for. That may work on paper, but it leaves no room for a broken machine, slow month, or optimistic seller assumption. Lenders choose their own minimums.

Professionals call this the SDE multiple. If a business is priced at $300,000 and reports $100,000 of SDE, the asking price is 3.0× SDE. That does not mean you will earn your money back in exactly three years—the loan, taxes, repairs, growth, and the accuracy of SDE still matter. Use the multiple to compare similar businesses and notice unusually expensive asking prices, not as a final verdict.

If a $400,000 car wash produces $100,000 of annual revenue, its revenue multiple is 4.0×. That number is only useful when comparing businesses with similar economics. Two car washes can collect the same revenue while one owns its land and has new equipment and the other pays high rent and needs major repairs. Revenue tells you what came in; it does not tell you what was left.

A 30% SDE margin means the seller reports about 30 cents of owner benefit for every $1.00 of revenue. A surprisingly high margin is not automatically wonderful—it can also mean expenses are missing or add-backs are aggressive. Compare the margin with prior years and similar businesses, then ask for the math behind it.

Suppose you invest $100,000 of your own cash and the model leaves $20,000 after yearly loan payments. The modeled cash-on-cash return is 20%. It is a useful comparison, not a promise. Taxes, repairs, a bad sales year, money kept in the business, and a future resale gain or loss are not fully captured here.

The price tag is only part of the shopping cart. Acquisition Quest adds the asking price, closing costs, and working capital to estimate the total use of funds. A $400,000 business with $10,000 of closing costs and $25,000 of working capital is a $435,000 project before any separately modeled SBA fee. The final lender worksheet may add inventory adjustments, financed fees, holdbacks, or other deal-specific items.

This is the number many first-time buyers care about most. It includes the uncovered part of the purchase price plus modeled closing costs and working capital. If the bank and seller cover 90% of a $400,000 price, the remaining price down payment is $40,000—but your total cash need will be higher once closing costs and working capital are added. A lender may also require extra personal savings or reserves beyond the calculator's estimate.

This combines the opening bank-loan balance and seller-note balance. It is the amount the business must ultimately help repay, not the total interest you will pay over time. Leases, earnouts, contingent payments, and other promises are not included unless they are modeled separately.

Acquisition Quest calculates this from the amounts, rates, and terms you entered. Treat it like a mortgage-calculator estimate: helpful for planning, but not your final payment schedule. Variable rates, lender fees, interest-only periods, balloon payments, and the exact first-payment date can all change the real number.

If you put in $100,000 and the model leaves $25,000 per year after loan payments, the simple payback is four years. That sounds straightforward, but the calculator assumes performance stays steady. Taxes, unexpected repairs, cash retained in the business, future investments, and the eventual sale value can make the real timeline shorter or much longer.

The SBA does not hand you the loan; a participating lender does. For many 7(a) loans, the lender pays SBA an upfront guaranty fee and may pass that cost to the borrower. The real fee depends on the fiscal year, loan size, guaranteed portion, term, and program rules. Acquisition Quest currently uses a simple 3.5% planning estimate. In plain English: leave room for it now, but replace our estimate with the lender's exact number before making a decision.