The vocabulary of buying and selling online businesses.

Add-backs normalize a small business's financial statements by removing expenses that won't transfer to a new owner. Common add-backs include the seller's salary, health insurance, personal vehicle, travel not tied to operations, one-time legal fees, and discretionary family payroll. A deal's add-back schedule often has more impact on the final sale price than the headline revenue number.

Buyers scrutinize add-backs heavily during diligence. Every add-back must be documented, defensible, and reasonable. Aggressive add-backs are the most common reason deals re-trade after LOI.

Brand aggregators became a dominant buyer class in Amazon FBA M&A during 2020–2022 before the sector contracted. Aggregators still exist as buyers, but are more selective today. They typically look for established brands with defensible categories, consistent profitability, and clean supply chains.

ARR is the single most important metric for valuing a SaaS business. It's calculated by taking active monthly subscriptions, annualizing them, and excluding one-time fees, services, and non-recurring revenue. For a SaaS acquisition, buyers will pay a multiple of ARR (typically 3x–8x for healthy B2B SaaS) rather than a multiple of profit.

ARR is not the same as revenue. A business with $2M in revenue and $1.6M in ARR is fundamentally different from one with $2M in pure ARR — because ARR is sticky, predictable, and contracted.

In an asset sale, the seller retains possession of the legal entity and the buyer purchases individual assets of the company. With respect to the purchase of an online business, assets that are typically included are the site's domain name, website code, e-commerce platform, licenses, goodwill, trade secrets, trade names, customer lists, and any inventory.

Asset sales carry much less risk for a buyer since any liabilities — disclosed or undisclosed — as well as any contingent expenses (pending litigation, tax reassessments) stay with the selling entity. Most digital business sales are structured as asset sales for this reason.

An Asset Purchase Agreement is the definitive document both buyer and seller sign to close an asset sale. It defines the assets and liabilities included with the sale and documents the price, payment schedule, closing date, and conditions of the transaction.

The APA also includes seller and buyer representations and warranties, covenants, indemnification provisions, disclosure schedules, and any non-compete clauses. Negotiating the APA is where most of the legal time on a deal is spent — often two to four weeks between the LOI and closing.

CAC is the denominator in unit economics. A SaaS or e-commerce business that spends $500 in ads and sales to close one customer has a $500 CAC. In digital M&A, buyers care more about the trend line than the absolute number — CAC that's rising faster than LTV is a yellow flag.

CAC payback — how many months of gross profit it takes to earn back the acquisition cost — is equally important. Healthy SaaS businesses aim for payback under 12 months.

The CIM is the primary sales asset in any M&A process. It's typically 20–60 pages and includes the company overview, historical financials, growth drivers, customer concentration, unit economics, team, technology, and investment thesis. A great CIM pre-answers the questions serious buyers will ask and anchors the valuation.

Buyers only see the CIM after signing an NDA. A weak CIM kills deals; a strong one drives competitive bidding.

Churn comes in two flavors. Logo churn measures the percentage of customers who cancel. Revenue churn (aka gross dollar churn) measures the percentage of recurring revenue lost from cancellations and downgrades. The gap between the two tells you whether your larger customers are stickier than small ones (usually yes).

Monthly churn under 2% is healthy for B2B SaaS; under 5% for consumer. Anything above is a valuation haircut. Churn above 10% monthly is often a dealbreaker.

COGS includes the cost of materials and direct labor used to create the product. It excludes indirect expenses like distribution, marketing, and admin overhead. COGS appears on the income statement and is subtracted from revenue to calculate gross profit. For e-commerce and FBA businesses, COGS is one of the most scrutinized numbers during due diligence.

The data room holds everything from tax returns and bank statements to vendor contracts, customer lists, IP assignments, and cap tables. Modern data rooms are hosted services (DealRoom, Firmex, Dropbox enterprise) that log every view, download, and Q&A exchange for audit purposes.

A well-organized data room is the single biggest accelerator of deal speed. A messy one adds weeks.

Offers to purchase a business are usually contingent on the results of due diligence. During this stage, the buyer reviews all financial records, legal documents, contracts, and operational details to verify the seller's representations. Typical DD requests include tax returns, bank statements, merchant statements, customer lists, supplier agreements, IP records, and website analytics.

Due diligence generally takes 30–60 days after the LOI is signed. Once complete, if the buyer substantiates everything, the parties move to drafting the Purchase Agreement.

In an earn-out, part of the purchase price is paid after closing based on the target company achieving certain financial goals. Earn-outs usually take one of two forms: a financing mechanism (where the seller carries part of the purchase price based on future performance) or an incentive (where the buyer offers a higher total price contingent on continued performance or seller involvement).

Example: a buyer offers 90% of the purchase price at close and an earn-out that pays the remaining 10% if the business hits 100% of prior-year revenue in the first year. Earn-outs shift performance risk to the seller and are more common in larger, more complex deals.

EBITDA is an approximate measure of a company's net earnings before the deduction of interest expenses, taxes, depreciation, and amortization. While not a GAAP-recognized measurement, it's widely used in business acquisitions because it lets buyers compare operating profitability across businesses with different capital structures, tax situations, and asset bases.

For digital businesses above roughly $5M in revenue, EBITDA (often "Adjusted EBITDA" after normalizing add-backs) is the primary profitability metric buyers use. Below that range, SDE is more common.

Revenues − Expenses (excluding Interest, Taxes, D&A) = EBITDA

Escrow is a financial arrangement where a third party (the escrow agent) oversees the completion of a transaction. The buyer typically deposits the purchase funds into the escrow account, where they're held until both parties meet predefined conditions — domain transfer, vendor agreement assignment, hosting handoff, and so on. Once the agent confirms all conditions are met, funds release to the seller (and commissions to the broker).

Some deals also include a post-closing escrow holdback — a portion of the purchase price held for 6–12 months to cover potential indemnification claims.

Family offices are an increasingly active buyer class in digital M&A. They move faster than PE (no fund committee), hold longer (no fund clock), and typically don't use debt. Many family offices now have dedicated digital business mandates and will acquire SaaS, content, or e-commerce companies directly.

Financial buyers evaluate a target primarily on cash flow, growth, and expected returns. They'll typically hold 3–7 years, improve operations, then sell to a strategic or another financial buyer. Multiples from financial buyers tend to be lower than strategics but process is more predictable.

Holdbacks typically range from 5% to 15% of the purchase price and are released after 6–18 months if no claims arise. They're a standard way to protect the buyer from misrepresentations or undisclosed liabilities without requiring the seller to sign unlimited personal guarantees.

Indemnification clauses in the APA define what happens if the seller's representations turn out to be false, or if an undisclosed liability surfaces after closing. The buyer can make a claim against the holdback or directly against the seller, within caps and survival periods specified in the agreement.

Negotiating the indemnification section is often the most contentious part of the APA. Sellers want tight caps and short survival periods; buyers want broad coverage.

When purchasing a business, a buyer submits an offer in the form of an LOI. While the document itself is non-binding, its purpose is to outline the deal terms in writing: purchase price, structure (asset vs. stock), payment timing, expected close date, exclusivity period, and key conditions.

Once both parties sign the LOI, the buyer begins due diligence and the seller is typically excluded from negotiating with other buyers during the exclusivity window (commonly 30–90 days).

LTV is the numerator in unit economics. For SaaS, it's typically calculated as (Average Revenue Per Account × Gross Margin) ÷ Churn Rate. For e-commerce, it's (Avg Order Value × Repeat Orders × Gross Margin). Investors care most about the LTV-to-CAC ratio — healthy businesses run 3:1 or better.

MRR is the SaaS operator's most important daily metric and the granular input to ARR (ARR = MRR × 12). MRR is tracked as new, expansion, contraction, and churned. The net change from these four components is what tells the growth story.

A multiple is simply: sale price ÷ profit metric. A business sold for $5M with $1M of SDE was sold at a "5x SDE multiple." Different profit metrics yield different multiples — SDE multiples are usually lower than EBITDA multiples on the same business.

Current market ranges (approximate): content sites 30–50x monthly profit; FBA brands 3–5x SDE; e-commerce 3–5x SDE; B2B SaaS 3–8x ARR; agencies 3–5x EBITDA. Multiples expand for higher-quality businesses with strong growth, recurring revenue, clean financials, and transferable operations.

Also known as a Confidentiality Agreement. In the sale of a digital business, every prospective buyer signs an NDA before seeing the CIM, financials, or any details that identify the business. The NDA protects the seller's trade secrets, customer relationships, and the confidentiality of the sale process itself.

A strong NDA also restricts the buyer from soliciting the seller's employees or customers for a defined period, even if no deal materializes.

Net Profit (also called net income) is the amount a business has earned after subtracting every expense from revenue. It's the bottom line of the income statement and the most commonly reported profitability figure — but in digital M&A, it's rarely the number buyers pay on. SDE or EBITDA are used instead because they normalize for owner compensation, taxes, and accounting choices.

Revenue − COGS − Operating Expenses − Interest − Taxes = Net Profit

Buyers of online businesses typically require a non-compete clause in the closing Purchase Agreement. Standard non-compete terms restrict the seller from performing similar work for 2–5 years. Because online businesses operate globally, the geographic limitation is usually worldwide.

A non-compete is designed to protect the buyer's investment. Without one, a seller could close the sale and immediately build a competing brand using the same playbook — a deal-killer for most acquirers.

NRR measures how much revenue your existing customer base will generate next year if you sign no new customers. NRR over 100% means existing customers are expanding faster than others are churning — the holy grail for SaaS valuations. Top-quartile B2B SaaS businesses run 110–130%+ NRR.

The P&L Statement (also called an income statement) shows a business's financial performance for a period — typically a month, quarter, or year. The top line is revenue, COGS is deducted for gross profit, operating expenses are deducted for operating profit, and interest and taxes are deducted for net profit.

For digital businesses, the P&L is what the broker uses to build the CIM's financial summary, what buyers analyze during due diligence, and what the QoE provider validates.

PE firms are the largest category of financial buyer in digital M&A above ~$5M EBITDA. They invest to IRR targets, use debt to amplify returns, and typically hold for 3–7 years before selling. Middle-market PE ($5M–$50M EBITDA) is a very active buyer class for mature SaaS and profitable e-commerce.

When acquiring a digital business, buyers are required to demonstrate they're qualified by showing sufficient funds are available. This is usually done with a Proof of Funds letter: an official bank letter on letterhead, signed and dated, showing account balances equal to or greater than the anticipated purchase price.

If the buyer is using financing, the POF must state the loan is guaranteed and will be funded in a timeframe that accommodates the purchase. POF is a standard gate at Website Properties — no serious buyer conversation happens without it.

A Quality of Earnings report is prepared by an independent accounting firm and scrutinizes the seller's P&L line by line to verify revenue recognition, normalize add-backs, identify customer concentration risks, and surface any accounting issues. For deals above ~$3M, buyers almost always commission a QoE before signing the APA.

A clean QoE accelerates closing. A messy one kills deals or triggers price re-trades. Preparing for QoE is one of the most important things sellers can do 6–12 months before going to market.

Representations and warranties are the seller's formal assertions about the business: that the financials are accurate, that there are no undisclosed liabilities, that the IP is owned free and clear, that customer contracts are valid, that no material litigation is pending, and dozens more.

If a rep turns out to be false after closing, the buyer can claim damages against the holdback or directly against the seller under the indemnification clause.

In a PE-led deal, the seller often "rolls" 10–30% of their proceeds into the buyer's new ownership structure. Rollover gives the seller a "second bite of the apple" — a chance to participate in the next exit — and signals to the PE firm that the seller has skin in the game going forward.

SBA 7(a) loans are the most common financing vehicle for individual buyers of small and mid-sized online businesses. Typical terms: 10-year amortization, ~10–20% down, SBA-qualified buyer, and an SBA-approved lender. SBA financing opens up the buyer pool significantly — and sellers whose businesses are "SBA-eligible" often command a small premium as a result.

SDE is the profitability number buyers use when there's a single owner-operator whose compensation, benefits, and discretionary spend would go away in the transaction. SDE starts with Net Profit and adds back interest, taxes, depreciation, amortization, one owner's salary, owner benefits, and any non-operating or non-recurring expenses.

For online businesses below ~$5M in annual profit, SDE is the standard metric. Above that size, buyers shift to EBITDA and treat management compensation as a normal operating expense.

Seller financing (sometimes called a "seller note") is an arrangement where the seller agrees to loan the buyer all or a portion of the sale proceeds. Terms — interest rate, amortization period, repayment schedule, consequences of default, and any balloon payment — are specified in the purchase agreement.

For SBA-financed deals, a seller note (usually 5–10% of purchase price on standby for 2 years) is commonly required by the lender. For non-SBA deals, seller financing is optional and tends to signal either a strong seller / weak buyer market or a specific deal structure preference.

In a stock sale, the buyer takes over the entire company — its contracts, bank accounts, IP, employees, and obligations — by purchasing the seller's equity. This is often preferable for sellers (favorable tax treatment) but riskier for buyers (inherits all liabilities, disclosed or not).

Stock sales are more common in larger, more complex deals and in transactions where contract assignment would be impractical.

Strategic buyers are operating companies that buy competitors, complementary products, or customer bases they can fold into their existing operation. Because they capture synergies (cost savings, cross-sell, pricing power), strategic buyers often pay the highest multiples in a competitive process — especially for SaaS and e-commerce brands in hot categories.

TTM smooths seasonal fluctuations and avoids the lag of waiting for full fiscal years to close. When a broker says "TTM revenue," they mean revenue for the last 12 completed months as of the measurement date. Most valuations in digital M&A are anchored on TTM metrics.

In M&A, working capital is usually negotiated as a "target" that the seller must deliver at closing. If actual working capital at close is above the target, the buyer pays the difference. If it's below, the seller gives a credit. This prevents a seller from stripping inventory or accelerating collections in the weeks before closing.

Working capital pegs are especially important in e-commerce and FBA deals where inventory balances can swing significantly.