During the process of buying and selling a business, there is a good chance you will hear terms you have never heard before. Some of these terms are integral to making the selling of your business as smooth as possible. Keep reading to find out what these terms are and how they affect the business selling process.
FF&E stands for furniture, fixtures, and equipment. These are the long-term assets your company possesses, and those that are used on a day-to-day basis. Depending on the type of business you own these could be construction equipment, machinery, computers, desks, display fixtures, or any other item that assists in business operations and can be resold.
The book value of these items is not an accurate representation of their true value. A lot of these items can continue to offer great value to a company even after their book value has depreciated significantly. Because of this, it is best practice to value these assets according to the potential value they can still offer to a business, and not their book value.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. This is a company’s net earnings before deductions via interest on outstanding loans, taxes, depreciation of assets, and paying off loans. Most accountants don’t use this as a concrete figure of a company’s value, but it is still widely used as an essential estimate of a company’s performance based on current assets and operating costs.
Comparables (comps) are the values of properties used for similar purposes as the one in question. In other words, if you are selling a construction site the comps are other construction sites in the general area of similar size and use. Usually, comps are assessed by a real estate agent with knowledge of the industry. Comps are the best way to make sure the value of your land assets is accurate.
SDE is the seller’s discretionary earnings and is the net income before salaries, benefits, expenses, and taxes. SDE is essentially the owner’s cash flow and is calculated using tax returns, income statements, and other financial documents. SDE includes the owner’s salary and compensation, as well as any meals, vehicles, benefits, and other perks included in the executive operations of the company. Since all of these expenses could also be used to pay off debts, prospective buyers see SDE as operating capital.
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