Valuation Terms

Enterprise Value

The total value of the business itself before adjusting for cash, debt, and working capital. Why it matters: This is often the headline price in an LOI, but it is not always the amount the seller takes home because debt, cash, working capital, taxes, and fees still need to be handled.

Related terms

Working Capital

The short-term money needed to run the business, usually current assets minus current liabilities. Why it matters: Buyers expect enough working capital to be left in the business at closing so operations can continue normally without an immediate cash shortfall.

Seller

The current business owner who wants to sell the business. Why it matters: The seller is not just handing over ownership; they are also proving the business, answering diligence requests, negotiating risk allocation, and often helping with transition.

LOI

Short for letter of intent. Why it matters: Even if most LOI terms are non-binding, the LOI often shapes negotiating leverage for the rest of the process.

More from Valuation Terms

Add-Backs Adjusted EBITDA CapEx Cash Flow EBITDA Equity Value Free Cash Flow Gross Margin Gross Profit Multiple Net Income Net Working Capital

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