Business Sale Terminology | GMO Buy a Business


ADD BACKS: Add backs are expenses charged to a business which would not be incurred by an incoming owner. For example, the existing owner may have personal expenses being funded by the business or may have overdrafts or loans which would not apply to the new ownership. Therefore, these expenses are “added back” to reflect the profit the business would make without those expenses. In this way the profit is ‘normalised” for potential buyers to examine and consider.BAS (BUSINESS ACTIVITY STATEMENT): Is the quarterly return of sales and GST reported by business owners to the ATO (Australian Taxation Office)CASH FLOW: Cash which is generated by a business enterprise. “Positive cash flow” suggests the business does not need extra working capital because the business is able to collect its inwards cash from its customers in a lesser time than it is required to pay its suppliers.CPI: Stands for the “cost price index” which reflects the annual rate of inflation in Australia.EBITDA: Is the Earnings of the business before interest, tax, depreciation and amortisation of goodwill. This profit is reflective of management costs being included in the profit of the business. EBITDA and EBIT are common profit description methods for larger privately-owned businesses and also for corporate businesses.ENCUMBRANCES: Are the obligations to third parties which the business has involving items of plant and equipment or in contractual commitments. Buyers need to be informed by the seller as to the exact nature of encumbrances, so they can make informed decisions about the business.FAIR MARKET VALUE: Is the price at which a business would change hands between a hypothetical willing and able buyer and seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have full knowledge of the relevant facts.GOING CONCERN VALUE: The value of a business enterprise which is expected to continue into the future.GOODWILL: Is the expectation that a business’s clients will continue to patronise the business after the ownership has changed.IAS (INSTALMENT ACTIVITY STATEMENT) Is a monthly report of sales activity reported to the ATO.INTELLECTUAL PROPERTY: Is the documented technical knowledge, systems, dies and patents, trademarks, formulae and recipes of the business which make it unique.PEBITDA: Is the proprietor’s earnings before interest, tax, depreciation and amortisation. This profit is used commonly for small and medium businesses and is indicative of the profit a business makes BEFORE the owner pays himself a management wage.PSAV (PLUS STOCK AT VALUATION) Is a purchase term which infers the buyer will pay the seller for the saleable stock of the business on settlement, when that stock has been counted and valued by an independent stock-taker.RESTRAINT OF TRADE: A written promise by a seller not to compete against the business they have sold for a certain period of time and within a certain geographic area.ROI (RETURN ON FUNDS INVESTED): Is a business term which suggests a yield on the total investment. The formula is “Profit divided by total purchase price and expressed as percentage”.WIWO (WALK IN WALK OUT): Is a purchase term which suggests an all up-purchase price where the goodwill, plant and stock are bundled into one price. The stock in these circumstances would not be counted by an independent stock taker and it is implied that the outgoing seller will leave adequate and normal levels of stock for the incoming buyer.


  • The disclosers are willing to disclose such information to the recipient subject to their acceptance of the following conditions:
    1. The recipient shall treat all information received from the discloser as confidential and shall ensure that all such information remains confidential and shall not use any such information in any way other than for the specific purpose aforesaid. The recipient acknowledges that all conditions subsequent in this disclosure apply to the recipient and any associates of the recipient be they partners, co‐directors, trustees, holders of shares or officersin entity(s) the recipient has interest in.
    2. The obligations of paragraph 1 shall not extend to any such information which is in the public domain, or which hereafter becomes part of the public domain otherwise than as a result of any unauthorised activity or omission of the recipient, or which is already in the possession of the recipient and was not derived from the disclosers.
    3. The recipient shall return all such information received other than that which is submitted orally at the termination of such negotiations entered into as a result of this agreement.
    4. The obligations set forth in paragraph 1, 2 and 3 shall terminate 12 months from the date of this agreement or upon the disclosers and the recipients entering into an agreement whichever event occursfirst.
    5. The recipient shall obtain no rights of any kind to such information other than for the specific purpose stated in this agreement.
    6. The receiving party will not utilise any material made available to improve, construct or change another business, in such a way as to allow that business to compete with the business being discussed.
    7. The recipient understands that the information has been compiled by GMO from details provided by the Vendor. Prospective purchasers should be aware that it is not intended that any projections or this information be treated as a representation, warranty or promise by GMO or its representatives, as to the correctness of the information, or that all relevant information is contained in the information provided.
    8. The recipient acknowledges that they will not act on information provided without first seeking independent financial and legal advice.
    9. The recipient hereby agrees to declare any beneficial interest in any business that could currently be interpreted as being in competition with the subject business.
    10. The recipient agrees to return all documents supplied within 50 days of receipt (and any copies) should they decide not to proceed. The recipient further agrees to destroy any electronic information supplied by the Seller or GMO and to instruct their professional advisors to also destroy any information passed on by the Seller, the recipient or from GMO.
    11. The recipient acknowledges they are precluded from physically visiting the premises of the business or talking to any client, supplier or employee of the business without the permission of the discloser.
    The recipient/s hereby accepts the above conditions as binding on them in respect of the information referred to.
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